Executive Rate Market Report: Durable Goods whiff

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 What is on the agenda for today?

Durable Goods:   Wow a big-time miss to the downside. On the Headline number, the market was expecting a gain of 1.8% but instead got a decrease of -4.3%. Plus, November was revised downward. The Core number was expected to show a gain of 0.5% but instead got a decrease of -1.6%. The prior period was also revised downward. Our benchmark FNMA 3.50 February coupon improved from -13BPS just before this report to +1BPS just after the report. That is an improvement of +14BPS. But still, that is a curiously small upward movement on such a miss to the down side and could be indicative that we are at the top end of our intra-day channel as MBS cannot seem to climb back above the 101.00 mark.

 

Case-Shiller Home Price Index   continues to show steady growth in home prices. The year-over-year (YOY) reading hit 13.7% which matched market expectations and is not a factor in pricing.

 

Next Up: Consumer Confidence.    This is a major report. The market is expecting a reading in 78 to 79 range which would be an improvement over the last reading. A reading over 79 will pressure pricing and a reading of 77.5 or lower will help pricing.

 

 Treasuries:    We get our first of three Treasury auctions this week. But this is a 2 year Note and is too short of a term to have a significant impact on the longer term bond yield curve.

 

 

FOMC:   They started their meeting today and will release their policy statement tomorrow. In my opinion, they will announce another reduction in the pace of their monthly purchases of Treasuries and MBS. The only question is the amount of the taper. The economic data that we have received (including the miss in the NFP) is not enough to alter their own economic projections and their decision to taper further is more based on their outlook and not on the past. Also, as we have discussed several times. The bond market has actually improved since their December meeting which clearly gives them permission to taper again since their concern is rising rates...and rates didn't rise...they improved.

 

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