The bond and mortgage markets started rather quietly this morning, stock indexes slightly better early but mostly unchanged. There are no economic data points to think about today. This week markets will contend with Treasury auctions and the FOMC meeting on Wednesday. Economic reports include two measures of consumer attitudes, new home sales for Dec and Q4 GDP advance look.

Treasuries and mortgage markets continue to trade in their narrow ranges that is now going on five weeks with interest rates contained in a 25 bp range for the 10 yr note and 15 bp for 30 yr mortgages. Investors still holding bonds, not yet willing to believe completely that the economy will improve as much as most now believe and not being influenced by all the talk about inflation. How much longer interest rates can stay at these low levels depends on economic reports for Jan, most we won't see until Feb when the key points are reported. While recent trading has been well defined, the outlook is for rates to move up as the year moves on.

This week the FOMC meeting with its short policy statement in Wednesday afternoon, The State of the Union address on Tuesday eve, and Treasury auctions are the critical elements. On Friday the first report on Q4 GDP is expected to show growth increase of 3.7%, up frm +2.6% in Q3.

At 9:30 the DJIA opened unchanged, NASDAQ +5 and S&P 500 unch; mortgage prices +1/32 (.03 bp) and the 10 yr note +2/32 at 3.40% -1 bp.

This Week's Economic Calendar:


              9:00 am Case/Shiller home price index for Nov (-1.5%)

             10:00 am Conference Board's consumer confidence index (54.2 frm 52.5)

                            FHFA Nov housing price index (N/A)

              1:00 pm $35B 2 yr note auction


              7:00 am weekly MBA mortgage applications

              10:00 am Dec new home sales (+3.4% to 300K annualized)

              1:00 pm $35B 5 yr note auction

              2:15 FOMC policy statement (no change in interest rates)


              8:30 am weekly jobless claims (+6K to 410K, con't claims 3.835 mil frm 3.861 mil)

                           Dec durable goods orders (+1.5%, ex transportation orders +0.6%)

              10:00 am Nov pending home sales (-0.5%)

              1:00 pm $29B 7 yr note auction


              8:30 am Q4 advance GDP (+3.5%)

                           Q4 employment cost index (+0.4%)

              9:55 am U. of Michigan consumer sentiment index (73.2 frm 72.7)

President Barack Obama said in a video to supporters that tomorrow’s State of the Union address will focus on cutting the deficit, reducing unemployment and ensuring the U.S. can compete with economic rivals. “My principal focus, my number one focus, is going be making sure that we are competitive, that we are growing, and we are creating jobs not just now but well into the future,” Obama said in a video released over the weekend.

Inflation worries appear to be lessening; Goldman/Sachs successfully sold 20 yr bonds on Friday with good demand. Economists are lowering forecasts for consumer price rises next year, with the median estimate declining to 1.9% this month from 2% in December, according to a Bloomberg survey. The record $13B auction of 10-year Treasury Inflation-Protected Securities last Thursday attracted lower-than- average demand and the difference between yields on 10-year notes and TIPS narrowed the most since May. Businesses are not likely to have much pricing power, consumers will likely not spend as much on discretionary purchases with food and energy prices expected to continue increasing, keeping price pressures low and business earnings subdued.

This year we will experience 4 unusual dates 1/1/11, 1/11/11, 11/1/11, and 11/11/11. Now figure this out; Take the last 2 digits of the year you were born plus the age you Will be this year, and IT WILL EQUAL 111. Very Strange...



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