Jobless Claims at 3-Month Low. Anticipating an Interest Rate Rally...

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Weekly Jobless Claims were much better than expected this morning, falling 21,000 to 434,000 vs. calls for 453,000. This is the lowest weekly claims print since the 4th of July (skewed by the holiday). Skepticism does however arise when you take a peek at the non-seasonally adjusted number of initial claims, which increased by 11,678 to 405,639. This indicates seasonal adjustments played a role in the headline decline in claims. The Labor Department said there was "nothing unusual" in the data though.  Either way initial claims moved under 450,000 and the 4-week moving average declined by 4,400. It's an improvement, now we need to see a sustained trend of  improvement.

Here is a quick recap from Reuters...

  • RTRS-US JOBLESS CLAIMS FELL TO 434,000 OCT 23 WEEK (CONSENSUS 453,000) FROM 455,000 PRIOR WEEK (PREVIOUS 452,000)
  • RTRS-US JOBLESS CLAIMS 4-WK AVG FELL TO 453,250 OCT 23 WEEK FROM 458,750 PRIOR WEEK (PREVIOUS 458,000)
  • RTRS-US CONTINUED CLAIMS FELL TO 4.356 MLN (CON. 4.400 MLN) OCT 16 WEEK FROM 4.478 MLN PRIOR WEEK (PREV 4.441 MLN)
  • RTRS-US INSURED UNEMPLOYMENT RATE UNCH AT 3.5 PCT OCT 16 WEEK FROM 3.5 PCT PRIOR WEEK (PREV 3.5 PCT)
  • RTRS-US CONTINUED CLAIMS LOWEST SINCE NOV 2008 08:30 28Oct10

RTRS-TABLE-U.S. jobless claims fell in latest week

Market Levels...

The better than expected claims number did little to bother the bond market.  10s actually rallied as the data flashed. This is indicative of short covering. The 10yr note is currently +13/32 at 99-16 yielding 2.683%. 10s moved below 2.67% briefly but have since ticked back above that level. Flows are positive in 10yr note futures, money is moving back into the long end of the curve. Open interest is higher and volume is above average.

Rate sheet influential MBS coupon prices are in the green in a generally tempered trading activity. Flows have been two way lately as spread players are selling in anticipation of a TSY rally and real money accounts are buying at the perceived price lows.  The December FNCL 3.5 is currently +0-09 at 100 the dollar. The December FNCL 4.0 is +0-04 at 102-15. I've got my version of the current coupon marked at 3.518%. Yield spreads are wider on the spot.

We sniffed out the pain trade the day after $13 billion long bonds were met with poor demand. The pain trade is just about played out and benchmark interest rates will soon turn the corner, hopefully during or after the 7-yr note auction,  as short covering should spark bargain buying from the hoard of LONGS in the long end of the yield curve.  READ MORE

Now we wait...

That's my story and I'm sticking to it. I understand if you're nervous about QEII and it's anticipated effect on mortgage rates. With that in mind I am working on a few knowledge base building posts which describe the underlying theory of the Federal Reserve's economic "strategery".

$29 billion 7s at 1pm. 7YR WI currently at 1.984% vs. cash 1.96%.

I am stepping out and won't return until after 1pm...who has my back if the market starts moving? Please use the comments section to alert your peers.