Treasuries and Mortgages Better Today!!!

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Treasuries and mortgages started a little better this morning; the stock indexes were weaker but got a slight boost on comments frm a big investor, he said the stock market still has a lot of room to increase and essentially commented that any lessening of the Fed’s QE should not negatively affect equity markets. There’s $400B looking for a place to invest and markets shouldn’t worry about the Federal Reserve tapering its stimulus program, David Tepper, co-founder and owner of Appaloosa Management, said in an interview on CNBC. There is no key economic data on the schedule; April import prices declined 0.5% as expected but export prices, thought to be -0.1% fell 0.7%. Export prices fell 0.5% in March; prices falling add more to the view inflation is no longer a concern. Tomorrow April PPI and Thursday April CPI will add more to the disinflation belief that has filtered through all markets recently. The lack of inflation concerns is to some extent a relief for fixed income investors, although there really hasn’t been much concern about it within markets; it has been mostly media hype. With inflation under control, monetary officials from the Federal Reserve to the European Central Bank have room to do more to stoke expansion without creating jumps in prices. On the opposite side of the argument over inflationary outlooks; PIMCO’s Mohammad El-Erian said he leans toward the possibility that it will be higher and less stable over the next three to five years. Markets don’t care much about outlooks three to five years away however. PIMCO, according to Mohammad El-Erian, is shying away frm risky assets (stocks) as it sees a growing disconnect between financial markets and the global economy. In a report posted today on PIMCO's website, El-Erian said the world economy is undergoing a “stable disequilibrium” that could end in financial turmoil, greater social tensions and beggar-thy-neighbor national policies. Egged on by “hyperactive” central banks, investors are playing down the dangers and pushing financial markets higher. El-Erian, who popularized the phrase “new normal” to describe an era of lackluster growth, said economies are nearing a fork “where the current road eventually ends, giving way to one of two contrasting outcomes” -- a fast, sustainable expansion or a slowing world economy with countries “competing for a smaller pie.” At 9:30 the DJIA opened +5, NASDAQ +5, S&P +2; the 10 yr note at 9:30 +5/32 ( 15 bp) at 1.90% with 30 yr MBSs +18 bp. So far this morning the 10 and MBSs are holding minor price gains after the huge and swift increase in rates since the April employment report was released on 5/3. The bond and mortgage markets becoming oversold may attract investors with inflation data showing no inflation to worry about. That said, the nature and speed in which the bond and mortgage markets have been subjected to recently is disturbing about the outlook for rates. One employment report started the run; the Fed is still easing and other than a lot of discussion the Fed appears committed to keeping the QEs intact.