Prices Started Better Today

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We are out a little early this morning; treasuries and mortgage prices starting better today still responding to Bernanke’s reversal and assurance that the Fed will continue to be there for one and all. He didn’t say the Fed would continue its $85B of monthly purchases, said the Fed was concerned that the unemployment level is mis-leading, that in itself has given the markets some motivation. It is no secret that unemployment is high and even with 7.6% many of the jobs are low paying and under the qualifications of many that have taken jobs just to try and make ends meet; also businesses are trying to dodge ObamaCare by keeping weekly hours under 30 to avoid having to provide insurance.   8:30 saw June PPI, expected up 0.5% and ex food and energy +0.2%; as reported overall PPI +0.8% and the core +0.2%. Yr/yr overall PPI +2.5% and yr/yr core +1.7%, both a little hotter than what was thought. The 0.8% gain in the producer price index was the biggest since September and followed a 0.5% rise the prior month. The data also showed limited cost pressures at the earlier stages of production, indicating demand for materials is being restrained by slower growth in China and weakness in Europe. That helps explain why Federal Reserve policy makers project inflation is likely to be at or below the central bank’s goal.   US stock indexes a little better this morning; the DJIA opened +8, NASDAQ +1, S&P +1. The 10 yr at 2.54% -4 bp and 30 yr MBSs +22 bps.   The last four sessions in the MBS markets has been generally flat although the 10 yr note rate has declined from 2.70% to 2.54% early this morning. More short-covering in treasuries but not a lot of new buying has pushed the 10 yr lower. Mortgage markets remain in disarray with little demand at the present lows. Markets still hold that interest rates are not likely to decline much, the risk of higher rates still prevails over markets.   Recent volatility in the finical markets makes it more difficult to attempt forecasting how markets will trade, but with Bernanke controlling the sentiment with his flip-flop comments and the fact he will have to testify at Congress next week, today may trade quietly waiting for how he will respond to questions that will be more direct and forceful than what he gets from reporters and Q&As after the prepared texts.