Larry Bailey

Current Trend Direction: Sideways - Battling Resistance

Risks favor: Floating

Current Price of FNMA 5% Bond: $101.62, -3bp

Bonds have already traded in a 62bp range within the first hour of trading. Uncertainty over the outcome of the US auto bailout as well as dismal Retail Sales and inflation concerns have Traders dazed and confused this morning.

Last night, the Senate rejected the $14B bailout for the US automakers, citing a lack of wage concessions by the United Auto Workers (UAW). GM and Chrysler are now on the brink of bankruptcy, which could come within the next month if an alternate plan can not be worked out. Additionally, vehicle sales for US cars have recently plummeted as consumers are hesitant to purchase from the Big Three over concerns they may not be around to back their warranties. This is making a bad problem much worse. Just a short while ago, word from the White House is that the government may be willing to use Troubled Assets Relief Program (TARP) funds to save an immediate collapse of the auto industry. We are closely watching how this plays out.

Inflation at the wholesale or producer level came in near expectations in November for the 4th month in a row, as the Producer Price Index dropped 2.2%. The decline was fueled by an 11.2% drop in energy prices. The Core PPI, which strips out food and energy, was inline at 0.1% leaving year over year prices at a 4.2% rate.

Retail Sales for November fell for a fifth straight month by 1.8%, this was actually slightly better than market expectations of a 2.0% drop. Either way, Retail Sales are very weak and indicative of the current economic climate. When stripping out auto sales, Retail Sales was -1.6%, also just slightly better than expectations.

Consumer Confidence was reported at 59.1, a bit better than expectations of 55.0.

We need to be very cautious floating here as the technical signals appear bearish. The Bond is showing a Double Top with prices "overbought" - and with floors of support quite a ways beneath current levels, there's potentially a lot of pricing to lose from here. But as we know these are not normal times and volatility remains high. Prices can swing dramatically on any news from Washington, which will trump technical factors. Therefore we will float carefully here and keep you posted.

Current Trend Direction: Sideways - Battling Resistance

Risks favor: Floating

Current Price of FNMA 5% Bond: $101.62, -3bp

Bonds have already traded in a 62bp range within the first hour of trading. Uncertainty over the outcome of the US auto bailout as well as dismal Retail Sales and inflation concerns have Traders dazed and confused this morning.

Last night, the Senate rejected the $14B bailout for the US automakers, citing a lack of wage concessions by the United Auto Workers (UAW). GM and Chrysler are now on the brink of bankruptcy, which could come within the next month if an alternate plan can not be worked out. Additionally, vehicle sales for US cars have recently plummeted as consumers are hesitant to purchase from the Big Three over concerns they may not be around to back their warranties. This is making a bad problem much worse. Just a short while ago, word from the White House is that the government may be willing to use Troubled Assets Relief Program (TARP) funds to save an immediate collapse of the auto industry. We are closely watching how this plays out.

Inflation at the wholesale or producer level came in near expectations in November for the 4th month in a row, as the Producer Price Index dropped 2.2%. The decline was fueled by an 11.2% drop in energy prices. The Core PPI, which strips out food and energy, was inline at 0.1% leaving year over year prices at a 4.2% rate.

Retail Sales for November fell for a fifth straight month by 1.8%, this was actually slightly better than market expectations of a 2.0% drop. Either way, Retail Sales are very weak and indicative of the current economic climate. When stripping out auto sales, Retail Sales was -1.6%, also just slightly better than expectations.

Consumer Confidence was reported at 59.1, a bit better than expectations of 55.0.

We need to be very cautious floating here as the technical signals appear bearish. The Bond is showing a Double Top with prices "overbought" - and with floors of support quite a ways beneath current levels, there's potentially a lot of pricing to lose from here. But as we know these are not normal times and volatility remains high. Prices can swing dramatically on any news from Washington, which will trump technical factors. Therefore we will float carefully here and keep you posted.

Current Trend Direction: Sideways - Battling Resistance

Risks favor: Floating

Current Price of FNMA 5% Bond: $101.62, -3bp

Bonds have already traded in a 62bp range within the first hour of trading. Uncertainty over the outcome of the US auto bailout as well as dismal Retail Sales and inflation concerns have Traders dazed and confused this morning.

Last night, the Senate rejected the $14B bailout for the US automakers, citing a lack of wage concessions by the United Auto Workers (UAW). GM and Chrysler are now on the brink of bankruptcy, which could come within the next month if an alternate plan can not be worked out. Additionally, vehicle sales for US cars have recently plummeted as consumers are hesitant to purchase from the Big Three over concerns they may not be around to back their warranties. This is making a bad problem much worse. Just a short while ago, word from the White House is that the government may be willing to use Troubled Assets Relief Program (TARP) funds to save an immediate collapse of the auto industry. We are closely watching how this plays out.

Inflation at the wholesale or producer level came in near expectations in November for the 4th month in a row, as the Producer Price Index dropped 2.2%. The decline was fueled by an 11.2% drop in energy prices. The Core PPI, which strips out food and energy, was inline at 0.1% leaving year over year prices at a 4.2% rate.

Retail Sales for November fell for a fifth straight month by 1.8%, this was actually slightly better than market expectations of a 2.0% drop. Either way, Retail Sales are very weak and indicative of the current economic climate. When stripping out auto sales, Retail Sales was -1.6%, also just slightly better than expectations.

Consumer Confidence was reported at 59.1, a bit better than expectations of 55.0.

We need to be very cautious floating here as the technical signals appear bearish. The Bond is showing a Double Top with prices "overbought" - and with floors of support quite a ways beneath current levels, there's potentially a lot of pricing to lose from here. But as we know these are not normal times and volatility remains high. Prices can swing dramatically on any news from Washington, which will trump technical factors. Therefore we will float carefully here and keep you posted.

Wed, Dec 10 - 3:45 PM ET
MBS stage a huge rally. Alert To Float. The 5% now near best levels in 3 years.

2:04 PM ET - US posts record November deficit of $164.4 billion.

2:00 PM ET - Conflicting news or uncertainty surrounding the auto bail out sends stock prices into the red. MBS near session highs. US court approves Tribune bankruptcy financing.

1:10 PM ET - Oil moves higher now at $45.17/barrel up $3.13.

11:20 AM ET - A plan to bail out the auto makers has made substantial progress. Stocks higher as are MBS. Oil falls from a daily high of $45/barrel to the current $43.

10:15 AM ET - MBS move into the black and put together a formidable rally - the 5% moves higher by 50bp from its low. Stocks higher led by the energy sector and the possible auto bailout.

8:48 AM ET - Shares of energy companies could move higher today - oil is higher by $2 at $44/barrel.

8:35 AM ET - No economic reports for today. Possible deal on the table for automakers. Treasury sells $28B 3-yr notes at 1:00pm ET. MBS lower. Stock futures higher.

Current Trend Direction: Sideways

Risks favor: Carefully Floating

Current Price of FNMA 5.0% Bond: $100.81 -9bp

In light of the recent price improvement in Mortgage Bonds, we have now switched our focus to the FNMA 30-year 5% Bond. This change is reflected on the Bond Page and text messaging.

There are no economic reports due for release today. The ongoing disconnect between the 10-Year Note and Mortgage Bonds continues and can be seen clearly on the Bond Page. There is a large $28B 3-year Note auction this afternoon, which could pressure the Bond market due to added supply.

Stocks are rising today on word that Congress will approve a $15B bailout to keep the Detroit 3 auto makers from seeking bankruptcy protection. However, there is speculation that a so-called "car czar" would be appointed who could force GM and Chrysler LLC into Chapter 11 bankruptcy if the companies don't come up with a restructuring plan by March 31.

Also helping Stocks are shares of energy companies, which are getting a lift from higher oil prices this week. Oil, now at $44.50 a barrel, has risen almost $4 a barrel since Friday's close of $40.81.

Mortgage Bonds are trading in a wide sideways range between a floor of support at $99.96 and resistance at $101.25. We will try and float, but be mindful of the heightened volatility and the continued de-levering we are seeing in the hedge fund world, where hedge funds are dumping well performing Mortgage Bonds into the market in order to raise capital.