Treasuries and mortgages opened a little better this morning after a slight price dip yesterday. Not much change in early trading; stock indexes early on pointed to a better 9:30 open. Weekly jobless claims at 8:30 were fractionally better than expectations, down 16K against estimates of a 6K decline to 453K from revised higher 469K last week (frm 465K). Weekly claims are stabilizing at 450K levels with no improvement but equally no additional increase in claims filings. The four-week moving average, a less volatile measure than the weekly figures, dropped to 458,000 last week from 464,250, today’s report showed. The number of people continuing to receive jobless benefits fell by 83,000 in the week ended Sept. 18 to 4.46 million.

The final Q2 GDP at 8:30 had a small revision higher, to +1.7% frm +1.6% reported in the advance report last month. Corporate profits in Q2 were +0.9% down from 11.4% in Q1. Not much reaction to the release; Q3 ends today do it is history as far as the markets are concerned.

The DJIA and the other key indexes opened stronger this morning at 9:30; the DJIA up 65; the 10 yr note and mortgage market came under selling pressure. At 9:30 the 10 yr note yield at 2.54% was up 4 basis points and mortgage prices off 6/32 (.18 bp).

At 9:45 the Sept Chicago purchasing managers' index, expected at 56.0 frm 56.7, was stronger at 60.4. All components increased; new orders at 61.4 frm 55.0. employment at 53.4 frm 55.5 and prices pd at 55.0 frm 57.2. There was no initial reaction to the data as the the DJIA was already up 100 points, the 10 yr note was hit more, -17/32 to 2.56% and mortgage prices -14/32 (.44 bp) and down 9/32 (.28 bp) frm 9:30 levels. Lenders that priced before 9:30 will very likely re-price quickly.

On the QE debate; the U.S. Senate confirmed Janet Yellen as vice chairman of the Federal Reserve, currently the Pres of the SF Fed, Yellen is considered a voice in favor of increased Fed easing. Also confirmed, Sarah Bloom Raskin, Maryland’s commissioner of financial regulation to the Fed's Board of Governors. Both appointees have histories of being more pro-active that will support an easing move if Bernanke thinks it necessary. QE is the hot button these days, bet as we have noted previously, whether it actually occurs depends completely on data points over the next month. If there is an easing by the Fed to buy more treasuries and/or mortgages we don't think it will help much in  driving down mortgage rates; a little decline but most of the action will stay in treasuries.

Today marks the end of US fiscal year 2010. The deficit isn't out yet but will likely be close to $1.3T to $1.4T.

Treasuries and mortgages being hit hard this morning so far; better weekly claims and Chicago PM indexes. Technically, as we have noted previously, the 10 yr note was unable to make new low yields so traders are covering adding to this morning's early volatility. If the national ISM manufacturing index hits stronger tomorrow morning look out, rates will very likely spike higher again. The better data this morning is shaking the QE idea; as we noted yesterday, there is a month's worth of data to see before the Fed meets in Nov, not to mention the elections so the idea that QE should be questioned.

So far this morning, one of the most volatile in weeks. Mortgage prices fell 18/32 (.56 bp) on the Chicago PM data but by 10:00 have bounced back to -10/32 (.31 bp). Treasuries having the same volatile trade; the DJIA, up 100 at 9:45, at 10:00 +73.



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