Morning Report - bonds rally on the FOMC minutes

Vital Statistics:

	Last	Change	Percent
S&P Futures	1958.0	-3.8	-0.19%
Eurostoxx Index	3053.9	0.6	0.02%
Oil (WTI)	86.82	-0.5	-0.56%
LIBOR	0.231	-0.002	-0.64%
US Dollar Index (DXY)	85.28	-0.013	-0.02%
10 Year Govt Bond Yield	2.31%	-0.02%
Current Coupon Ginnie Mae TBA	106.9	-0.1
Current Coupon Fannie Mae TBA	106.4	0.0
BankRate 30 Year Fixed Rate Mortgage	4.01

Stocks are lower after on overseas weakness. Bonds and MBS continue their post-FOMC minutes rally.

The 10 year traded below 2.28% earlier this morning as the market continues to digest the more dovish than expected FOMC minutes. The Fed is becoming concerned about global growth, and that could push them to keep rates low for longer. The minutes weren't incredibly different from what the Fed has been saying all along, but combined with the weakness out of Europe and the strong dollar, was enough to push rates lower. Note the Bankrate 30 year fixed rate mortgage is flirting with a 3 handle. If this continues, we might see another refi wave, although prepayment burnout is probably the dominating factor at this point. 

The thing to keep in mind is that US treasuries cannot be oblivious to what is happening in global bond markets, and global bond markets are rallying on international economic weakness. The German Bund hit an intraday low of 85.6 basis points this morning. In fact, remember the PIIGS (Portugal, Italy, Ireland, Greece, and Spain)? Only Portuguese and Spanish bonds yield more than the 10 year. 

Alcoa kicked off earnings season last night with better than expected profits based on increased demand from autos and airplanes. Pepsico also reported good numbers based on its ability to push through price increases. Both of these reports should be bond bearish, not bullish, but here we are. 

Initial Jobless Claims came in at 287k, the 4th consecutive week below 300k. People who have been out of work for a while may be struggling to find jobs, but those with jobs are keeping them.