Market UpDate

On Wednesday, treasuries rallied as worries over the slow pace of the economic growth spurred investors to buy treasuries. The $21 bln 10-year T-note auction attracted above average demand and came in at a yield of 2.967%. The 2-year treasury finished up 1.25/32nds (0.393) and the 10-year treasury finished up 13.5/32nds (2.964). Mortgages rallied as well and finished mixed versus treasuries. Lower coupons out-performed with good support from servicer and money manager account buying while higher coupons under-performed with real money and relative value accounts selling. Origination was $1.1 bln on the day and the FNCL 4.0s (30-year) in June finished up 9.0/32nds (101-12) and the FNCI (15-year) 3.5s in June finished up 6.5/32nds (102-23+). Gold/Fannie swaps had some movement with the biggest changes in the 5% swap, moving from -4.25/32nds to -5.25/32nds and the 6% swap, moving from -1.5/32nds to 0.5/32nds. These moves were as a result of a number of factors including prepayment releases, technical factors such as class A and quarter-end settlements, and trading flows.

Today’s economic releases includes the weekly initial unemployment claims report which is expected to fall 3,000 to 419,000, adding to last week's decline of 6,000 to 422,000. Meanwhile, weekly continuing claims are expected to fall 11,000 to 3.700 mln, adding to last week's decline of 1,000 to 3.711 mln. The markets will be watching today's unemployment claims report even more closely than usual to gauge whether the paltry 54,000 gain in May payrolls was a one off event, or whether it was the beginning of a sustained period of weakness in the labor market. The April U.S. trade deficit is expected to widen slightly to -$48.8 bln from -$48.2 bln in March. The US trade deficit has been pushed wider in the past five months by sharply higher oil and commodity prices, which have boosted the dollar value of U.S. imports. The Treasury will complete this week’s auctions with the selling of $13 bln in 30-year T-bonds. Currently, the DJIA futures are pointing higher 36 points to 12,066.