“Roses are red, violets are blue, bonds are green so we love you”! Dealers report good cash buying by state side real money buyers. Nothing huge but steady flows from managers and a few trading accounts. Some of the support has come from government buying in TIP product (Inflation protected bonds) while short covering at the CBOT (note and bond futures) and comments by Fed governor Dudley ( he supports continued U.S. debt buying) have added to the better tone. No news today but starting tomorrow, the data starts to heat up. Import Prices, Retail Sales, Business Inventories, and NAHB Housing Index are just a few for tomorrow. New Residential Construction, Industrial Production/Capacity Utilization and PPI (inflation at the wholesale level) will be on Wednesday’s slate. Thursday will feature the standard Weekly Unemployment Claims along with CPI (inflation at the consumer level). Friday is a free day. Keep an eye on the inflation numbers. They will get the most attention. Couple of interesting side notes. One is that Pimco Total Return Fund, the world’s largest asset (bond) totally 238.5 billion, has cut its holdings in government related securities from 22% to 12%, mortgage backed securities from 45% to 42%, and increased its cash holding from a negative 7% to positive 5%. They have also shorted duration in the portfolio from 7.12 years to 6.13 years. All of the above are defensive in nature, anticipating higher interest rates down the road. From the technical side, overall conditions remain bearish with trend signals and daily oscillators maintaining good bearish readings. We are however, bumping up against the 8 day moving average (3.62%) which in the past, has been very good resistance. If we can close below 3.61% (currently we’re right on top of it), bearish signals will start to lose their power. Careful here as we are at critical levels. Happy V-Day to all!
Scotty
Scott S. EggenSenior Vice President – Capital MarketsPrimeLending, A PlainsCapital Company18111 Preston Road, Suite 900Dallas, Texas 75252
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