Where do we begin. It was a rough week last week, both on the weather front and the bond front. The Steelers and Christina Aguilera has a tough day (yesterday) as well. The winner, besides the Pack, seems to be the Pug who ran over his master in the Doritos commercial. $500.00 production returns a touch over 1 million! Not a bad return. Back to reality and a new week. First of all, let’s try to make some sense of last Friday Employment Report. Nonfarm payroll plus 36K yet the rate fell to 9.0%. Not only is it confusing but one of the two numbers is simply not telling the truth. The best reason I can give you for the drop in unemployment rate is that approximately 700K people quit searching for jobs. The negative effect on this group of unemployed has a positive effect on the unemployment rate. Factoring in weather issues and the fact that my last statement may or may not be true, it seems to us that the real picture is somewhere in the middle, say job growth of 125k and an unemployment rate of 9.4%. The distortions will be revised in the months ahead. In the meantime, the market is trying to decide which number is telling the truth. Given all of the above, we need to keep this in context of the big picture, one that is telling us that the economy is getting better, jobs are being added, consumers are spending more, and confidence is building, albeit at a slow pace. Trends such as this will slowly bump interest rates higher (4.0% to 4.25% 10 year note yield) over the course of 2011. Mortgage rates will follow suit, grinding higher from current 4.75% - 4.875% levels to 5.25% - 5.375% by year’s end. Nothing huge in the grand scheme as we turn this Titanic into a full blow purchase market. Trust me, it’s all good. No news today but we do have auctions starting tomorrow (72 billion of 3’s, 10’s, and 30 year bonds). Thursday and Friday are the heavy days, featuring Weekly Claims, Wholesale Trade, International Trade, and the Michigan Sentiment Survey. Geo-political concerns are still with us (Egypt) and the Hill will start to debate Fannie/Fhlmc this week. That should be interesting. Technically, we taken out good support and appear to be headed for the Elliot Wave target of 177 22 on 10 year note futures (3.75% to 3.77% yield). With current yields at 3.67%, things could get a little nasty before they get better so keep your guard up.
Scotty
Scott S. Eggen
Senior Vice President – Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252
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