Bond prices rose yesterday as stocks suffered another beating. The Dow and bond yields both closed at their lowest levels in a month. Stocks were reacting, in part, to President Obama’s renewed focus on reigning in big banks. The administration is seeking to curb proprietary trading and reign in too-big-to-fail institutions. Despite widespread support on Capitol Hill for constraining the large banks, it is unclear how soon and in what form the President’s proposals will materialize. The moves would require Congressional approval and House Financial Services Chairman Barney Frank indicated that the changes would not be in effect for a number of years.
Meanwhile, the confirmation of Bernanke, which was thought to begin as soon as today, does not appear to be making any progress. Senate Majority Leader Reid, who must schedule the vote and does not appear to have sufficient Senate support to do so, seems to be waffling based on a quote where he said “As the Senate prepares to take up Chairman Bernanke’s nomination, I look forward to hearing more from him about how he intends to address these issues.”
This morning, bond prices are slightly lower and stocks have once again opened lower. Corporate earnings and, in some cases, even revenues are coming in better-than-expected but investors seem focused more on concern for the future than joy over the fourth quarter. The economic calendar is dormant today. The economic data releases on tap next week are not terribly significant but it will be a momentous and potentially volatile week with the State of the Union address, the FOMC meeting, and the last week of Bernanke’s current term as Chairman.
Currently we are trading off a tick or two in mtg backs with the 10yr unchanged at a 3.61yld. Buying yesterday forced prices to close above the 50% retracement of the Nov/Dec sell-off at 117-28. The market is trading that level as we speak. The next target would be the 62% retracement of that previous sell-off at 118-11. We would expect to see a push to that level with some light consolidation on the way up.
Have a great weekend!
