Fill er’ up before it’s $4.00 a gallon. Geo-political unrest has spread to Libya, part of the OPEC group that produces 1.5 million barrels a day. Civil unrest has turned violent in that country with hundreds dead. Trouble is the media is banned so no one knows for sure the status of the chaos. What we do know is that Brent Crude is up nearly $7.00 a barrel. If the protests spread to Saudi Arabia, expect oil to jump another $20.00. The violence has spurred flight to quality buying in the treasury market and helped mortgage backs along the way. 10 year notes are up 28/32’s and while mortgage backs have not gotten that much love, they are still plus 10/32’s on the day. News today, other than Colonel Gaddafi’s comments that he will not step down and is willing “to die a martyr,” was a not so good Case Shiller housing report. The 20 city index fell 2.4% as valuations are “bumping along the bottom,” best case. Some are talking double dip. The Conference Board Consumer Sentiment was also released, up nearly 6 points to 70.4, the highest level since February 2008. $4.00 a gallon gasoline could change that in a hurry. We have auctions this week, starting today with 35 billion 2 year notes as part of a 99 billion dollar package. Technically, the market is maintaining good gains which will improve the chart structure on both daily and hourly time frames. Bullish divergences hint of further upside (rally). Bond and mortgage back bulls (that’s us) need a close below 3.45% (currently at 3.49%) to really get this thing moving. So as we speak, we are right up against good resistance, and for the most part being led around by a guy who promises to give the death sentence to anyone who defies him. Honestly, this market can go either way so pay attention to what’s going on in the Middle East. It will move markets.
Scott Eggen
SVP, Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252
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