Our benchmark FNMA 5.5% bond took a 28bp step higher today in response to a flagging stock market, closing at $101.84. There was little in the way of economic news. Pending Home Sales in Oct. fell -0.7% and dropped -1.0% on a year-over-year basis vs. a consensus of -3.0% for the month and -3.6% year-over-year. Another positive was stronger sales in California and Florida, two of the weakest states for real estate in the country. A $15 billion bridge loan bailout plan for the Big 3 automakers is being finalized. A congressional vote is expected tomorrow. A $30 billion Treasury auction in four-week bills today was very unusual to say the least. Exceptionally aggressive bidding with a Bid/Cover Ratio of 4.20 took the yield to 0.00% and actually below 0% to -0.05% after factoring in bookkeeping expenses. Investors placed bids for $126 billion at the auction for $30 billion in four-week bills ($126B/$30B = 4.20). Usually a Bid/Cover Ratio of 2.0 is a sign of a successful auction with aggressive bidding. In this particular case such a strong auction with 0.0% yield means investors are just parking cash and are looking to not lose money rather than taking any risk to earn even a tiny return. Tomorrow the Treasury will sell $28 billion in 3-year notes and on Thursday they will sell $16 billion in 10-year notes. The short end of the yield curve is being used as a safe-haven parking place for cash. In stock land, Broadcom, Danaher, FedEx, Texas Instruments, and Nucor all lowered their earnings guidance to lead the market lower and give the Bears a reason to cheer. The Dow fell 242 points to end at 8,691. The broader S&P 500 Index slid 21 points to close at 888 and the NASDAQ Composite Index lost 24 points to close at 1,547.

Our benchmark FNMA 4.5% bond fell 9bp to close at $101.72 after trading in a 57bp intra-day range and reaching a daily low of $101.34. Once again, bonds were weaker early in the session when stocks were stronger. Bonds then recovered most of their losses after 'quadruple witching' hit stocks with some extra volatility heading into the market close. 'Quadruple witching' takes place each quarter when contracts for stock index futures, stock index options, stock options and single stock futures all expire at the end of the session. Despite its 'spooky' title, quadruple witching has historically provided an upward bias for the stock market for the few days that follow from the unwinding of bearish positions in the futures and options markets. News of government assistance for the troubled Big 3 automakers also impacted the financial markets today. The Bush Administration announced the government will provide loans of $9.4 billion for General Motors and $4 billion for Chrysler with another $4 billion available in February if needed. Ford is looking for access to a $9 billion line of credit for financing a restructuring plan but said they hope it won't be needed. The major stock market indices ended 'mixed.' The Dow closed 25 points lower at 8,579 after trading in a 237 point range. The broader S&P 500 Index gained 2 points to end at 887 while the NASDAQ Composite Index recovered 11 points to close at 1,564.

Our benchmark FNMA 4.5% bond fell 28bp to close at $101.66 while trading within an expanded 137bp intra-day range. The bond showed early upward momentum following yesterday's huge rally but fell to profit taking later in the session as volatility picked up. Mortgage bonds have a history of spiking higher on significant Fed rate cuts only to temporarily sell off in the days that follow. The financial markets spent most of the day pondering future outcomes of the Fed's latest monetary policy. Commercial banks responded by immediately dropping their prime lending rate by 75bp to 3.25%, the lowest rate in over 50 years. This will help millions of business and consumer borrowers. The Fed has also offered to lend up to $200 billion to support securities backing car loans, credit card loans, and student loans. Another expected outcome is lower mortgage rates. Conventional 30-year mortgage rates may fall to around 4.50% from their current average level of 5.47% in the months ahead. The 3-month U.S. dollar LIBOR rate fell to 1.58% from 1.85% yesterday following the Fed's rate cut. Before the credit crisis hit, the 3-month U.S. dollar LIBOR usually traded within 50bp of the official Fed funds rate. We'll know the credit crisis has fully eased when this 50bp relationship has been restored. Stock prices swung back and forth between positive and negative territory before finishing lower. Morgan Stanley reported larger than expected losses of $2.30 billion in the fiscal 4th quarter vs. estimates for a loss of $298 million. Morgan Stanley's earnings troubles along with those of Goldman Sachs $2.12 billion loss posted yesterday weighed on the stock market as traders are quick to sell rallies to lock in profits during this bear market. The Dow fell 99 points to close at 8,824 while the broader S&P 500 Index retreated 8 points to end at 904. The NASDAQ Composite Index gave back 10 points to finish at 1,579.

Our benchmark FNMA 4.5% bond traded indecisively within a 37bp range before ending 13bp lower at $100.72. Traders largely marked time ahead of tomorrow's big FOMC rate decision and policy statement. It is widely expected the Fed will cut the Fed Funds rate in half to 50bp from their current 1.0% level and they will also probably lower the Fed's Discount Window rate by at least the same amount. The day's economic news was woeful as usual - what else is new? The NY Empire State Index painted a dismal picture for manufacturing activity in the New York Region during December. There was a contraction in activity with a reading of -25.8. While this is worse than November's -25.4 reading, it was slightly better than the consensus forecast of -27.0. Industrial Production was a little worse than anticipated, falling -0.6% in November with factory production declining 1.4%. Capacity Utilization fell to a five-year low of 75.4% from a revised 76%. The Treasury International Capital (TIC) report for Oct. showed net foreign buying of U.S. investments shriveled from $65.4 billion to just $1.5 billion. Foreign investors shied away from stocks, corporate bonds, and agency bonds but increased their 'flight to safety' buying in Treasuries to $34.6 billion from $20.7 billion in September. Meanwhile the stock market had to contend with the continuing fallout from the $50 billion fraudulent investment scheme devised by Bernard Madoff. The Dow fell 65 points to close at 8,564 while the broader S&P 500 Index dropped 11 points to end at 868. The NASDAQ Composite Index lost 32 points to finish at 1,508.

Our benchmark FNMA 5.0% bond reached a multi-year high of $101.90 with a 53bp gain at one point during today's session before getting hit with profit-taking to end 28bp higher at $101.56. A day of terrible economic news and a bogged down bailout bill for the Big 3 automakers in Congress forced investors to flee the stock market and seek the relative safety of bonds. Weekly Initial Jobless Claims jumped to a 26-year high with an increase of 58,000 to reach 573,000 claims vs. a consensus estimate of 525,000. The 4-week moving average increased by 14,250 to 540,500, also a 26-year high. The claims data continues to show the labor market at recessionary levels. The Labor Dept. reported Import Prices plunging by a record -6.7% during Nov. with crude oil leading the way with a record 25.8% drop. Non-oil import prices fell 1.8%, a record decline. Export Prices also fell a record amount, plunging by 3.2%. The U.S. Balance of Trade reached a greater than expected deficit of -$57.2 billion in Oct. vs. a forecast of -$53.5 billion. One outcome of the poor economic news was a sharply falling U.S. dollar against major foreign currencies such as the euro and yen. This triggered a spike in oil and gold prices with oil futures jumping by more than 12% at one point. Jan. crude oil ended $3.69 higher at $47.21/barrel while Dec. gold rose $10 to $817/oz. The Treasury re-opened a 10-year Note auction for $16 billion with an 'OK' 2.44 bid to cover ratio and a foreign participation level of 12.7%. A gloomy UCLA Anderson Economic Forecast report was released projecting a deep recession for 2009. The report forecast a 4.1% reduction in GDP for the 4th Qtr. of this year followed by 3.4% and 0.8% declines in GDP during the 1st and 2nd quarters of 2009, respectively. The report goes on to state there will be a loss of another two million jobs next year with the unemployment rate reaching 8.5%. Deflation risk will become more of a threat than inflation with lower consumer demand and plunging commodity prices. OPEC is expected to try and stop the recent record drop in oil prices by enacting a major production cut at their next meeting on Dec. 17 in Algeria. The Dow retreated 196 points to close at 8,565 while the broader S&P 500 Index lost 25 points to end at 873. The NASDAQ Composite Index fell 57 points to finish at 1,507.

Our benchmark FNMA 5.0% bond rallied with a 47bp gain to close at $101.38. Today was also one of those rare days when stocks finished higher as well. Mortgage bonds benefited from the government's buying program for mortgage backed securities while the stock market benefited from news that a deal was struck between congressional leaders and the Bush Administration to offer the Big 3 automakers up to a $15 billion bridge loan package in an effort to keep them out of bankruptcy. Energy sector stocks also benefited from a pop in oil prices with Jan. 2009 crude oil futures rising 4% or $1.81 per barrel to $43.88 per barrel. There was little in the way of economic news to drive the bond market although the Wholesale Inventories report showed a 1.1% drop in inventories vs. a consensus of only a -0.2% drop for October. It was the largest fall in inventories in 7 years along with sales at the wholesale level crashing at an all-time record -4.1% decline. The Treasury sold $28 billion in 3-year notes with a lower than expected bid to cover ratio of 2.15, but with a decent level of foreign participation of 35.3%. Shorter duration Treasury debt offerings are attracting a far greater number of bidders than this multi-year issue suggesting the private credit markets remain very distressed. The Fed sees this also and is discussing plans to issue its own debt securities in an effort to provide it with another tool to normalize the credit markets. The Dow backed off of its best levels of the day to record a 70 point gain to close at 8,761 while the broader S&P 500 Index advanced 10 points to end at 899. The NASDAQ Composite Index picked up 18 points to finish at 1,565.

Our benchmark FNMA 5.5% bond took a 28bp step higher today in response to a flagging stock market, closing at $101.84. There was little in the way of economic news. Pending Home Sales in Oct. fell -0.7% and dropped -1.0% on a year-over-year basis vs. a consensus of -3.0% for the month and -3.6% year-over-year. Another positive was stronger sales in California and Florida, two of the weakest states for real estate in the country. A $15 billion bridge loan bailout plan for the Big 3 automakers is being finalized. A congressional vote is expected tomorrow. A $30 billion Treasury auction in four-week bills today was very unusual to say the least. Exceptionally aggressive bidding with a Bid/Cover Ratio of 4.20 took the yield to 0.00% and actually below 0% to -0.05% after factoring in bookkeeping expenses. Investors placed bids for $126 billion at the auction for $30 billion in four-week bills ($126B/$30B = 4.20). Usually a Bid/Cover Ratio of 2.0 is a sign of a successful auction with aggressive bidding. In this particular case such a strong auction with 0.0% yield means investors are just parking cash and are looking to not lose money rather than taking any risk to earn even a tiny return. Tomorrow the Treasury will sell $28 billion in 3-year notes and on Thursday they will sell $16 billion in 10-year notes. The short end of the yield curve is being used as a safe-haven parking place for cash. In stock land, Broadcom, Danaher, FedEx, Texas Instruments, and Nucor all lowered their earnings guidance to lead the market lower and give the Bears a reason to cheer. The Dow fell 242 points to end at 8,691. The broader S&P 500 Index slid 21 points to close at 888 and the NASDAQ Composite Index lost 24 points to close at 1,547.

Our benchmark FNMA 5.5% bond traded within a 47bp range before ending 12bp higher to close at $101.56 in a late-day move. The bond traded as high as $101.72, but was unable to mount any kind of sustainable rally as equity markets continued to rebound following last Friday's sharp move higher and pulled money away from the bond market. Economic stimulus programs conducted by governments and central banks around the world boosted investor sentiment toward stocks today. The Chinese government is reportedly planning to expand its recently announced $586 billion economic stimulus package while the government of India said it would boost spending by another $4 billion and cut taxes in an effort to further stimulate their economies. In the U.S., President-elect Barack Obama announced plans over the weekend for a massive public works spending program to further stimulate the U.S. economy. Additionally, Congress reportedly hammered out the final details for a rescue plan consisting of temporary bridge loans for the Big 3 automakers. Loans totaling $15 billion would be extended through March 2009 to provide the automakers a chance to restructure themselves into viable car manufacturers. A 3-year and 10-year Treasury Note funding announcement showed the Treasury is seeking a $28 billion increase in 3-years and $16 billion in re-opened 10-year Notes, suggesting Treasury supply will remain high for the remainder of this year. This added supply may work to weigh down the bond market. The Dow extended Friday's rally with a 298 point gain to close at 8,934. The broader S&P 500 Index bounced 33 points to end at 909 while the NASDAQ Composite Index gained 62 points to close at 1,571.

Our benchmark FNMA 5.5% bond was able to pick up 31bp for a close of $101.81 during a session marked by weak economic and corporate news that drove the stock market lower ahead of tomorrow's key Jobs Report. Bonds were also helped out by the expectation the Fed will begin their buying program to purchase Agency bonds. Sour labor-market news continued today with announcements of AT&T cutting 12,000 jobs and DuPont cutting 2,500 jobs. Initial Jobless Claims fell by 21,000 claims to 509,000 in the latest week, the lowest level in a month. However, the more significant four-week moving average increased by 6,250 to 518,250 claims, the highest level in 26 years. The Monster.com Employment Index, a measure of on-line job postings, fell 7 points to 143, its lowest level in four years. In other news, Factory Orders fell 5.1% in October, the largest drop in 8 years. During a Fed conference on housing finance, Chairman Ben Bernanke said home foreclosures still remain 'too high' and that 'more needs to be done.' To that end, Bernanke said Congress should ease the terms of the government's Hope for Homeowners Program and the FDIC's 'IndyMac Plan' to help prevent an estimated 2.25 million pending home foreclosures. Bernanke also suggested the government could buy large quantities of delinquent or risky mortgages and then refinance them into the Hope for Homeowners Program. Meanwhile, Treasury Secretary Hank Paulson is proposing a plan to lower 30-year fixed rate mortgages to 4.5% by buying massive quantities of mortgage-backed securities from Fannie Mae and Freddie Mac. The stock market showed modest losses for most of the day but selling accelerated during the final hour as traders exited positions ahead of tomorrow's Jobs Report. The Dow fell 215 points to close at 8,376 while the broader S&P 500 Index lost 25 points to end at 845. The NASDAQ Composite Index retreated with a 47 point loss to finish at 1,445.

It was another topsy-turvy day in the financial markets marked with plenty of volatility. Our benchmark FNMA 5.5% mortgage bond traded within a 57bp range before posting a 6bp loss to close at $101.50 while the Dow traded within a 400 point range. There was plenty of economic news for the markets to ponder - most of it 'bad.' The Fed's Beige Book summarized the country's current economic condition by stating 'Economic activity weakened across all Federal Reserve districts.' Amazingly, the Fed's report failed to make use of the term 'recession.' The Challenger Layoff report for November jumped by its highest amount in almost seven years to 181,671 from the 112,884 layoffs reported in October. The November ADP Employment Report is forecasting a drop of 250,000 jobs in the private sector, the largest drop in six years. The job loss total exceeded the consensus forecast of -200,000 jobs. However, the ADP report has the dubious distinction of underestimating job losses every single month this year. Third Quarter Productivity was revised to a higher than expected 1.3% from the previously announced level of 1.1% and higher than the consensus of 0.9%. The ISM Services Index fell at a record rate in November with a plunge to 37.3% from 44.4% in October, the lowest level seen since this Index was created in 1997. The ISM Services employment sub-index dropped to 31.3% from 41.5% in October suggesting this Friday's official jobs number could be worse than the current consensus of -325,000 jobs. The chief U.S. economist at High Frequency Economics said the plunge in the ISM employment index is forecasting a loss of 500,000 jobs in November. If this sharply higher than expected job loss is reported on Friday we should see an ensuing rally in bonds. The stock market managed to discount all of the day's dismal economic news to score modest gains. The Dow added 172 points to close at 8,591. The broader S&P 500 Index gained 21 points to finish at 870 and the NASDAQ Composite Index tacked on 42 points to end at 1,492.

Our benchmark FNMA 5.5% mortgage bond traded in an expanded 98bp intra-day range, reaching a gain of 78bp at one point, before getting hit with profit-taking late in the session on the exaggerated move to settle for a 22bp gain and a close at $102.06. Fed Chairman Ben Bernanke provided the fireworks for the bond market this afternoon during a speech before the Greater Austin Chamber of Commerce in Austin, Texas. Bernanke said further interest-rate cuts are 'certainly feasible' and restated the Fed's plan announced last week to spend $500 billion on the purchase mortgage-backed securities guaranteed by Fannie and Freddie, and another $100 billion to directly purchase longer-term mortgages held by Fannie, Freddie and the Federal Home Loan Banks over the next few quarters. The news sent mortgage bond prices soaring until a bout of profit-taking set in. Mortgage bonds got off to a positive start from the Open following news of bad retail sales data in Germany and a large drop in manufacturing reported throughout Europe. Manufacturing was also down considerably in the U.S. as the national ISM Index for manufacturing activity during November was reported at 36.2, a 26-year low, vs. expectations for 38.0. Values below 50 indicate a contraction in manufacturing activity. The new orders index fell to 27.9 from 32.2, its lowest level in more than 28 years. The employment index fell to 34.2 from 34.6, its fourth straight monthly decline. Construction Spending in October fell 1.2%, exceeding the -0.9% drop economists predicted. These reports indicate the economy is in a steep recession. In fact, the National Bureau of Economic Research announced the economy fell into a recession beginning in December 2007. The stock market underwent an extreme, negative reaction to the recession news with the Dow plunging 679 points to close at 8,149. The broader S&P 500 Index plummeted 80 points to end at 816 and the NASDAQ Composite Index fell 137 points to finish at 1,398.