Market News – 10/23/08

 

The benchmark FNMA 6.0% mortgage bond climbed back on the volatility swing today and made a turn lower with a loss of 41bp to close at $101.41.

 

The bond chart was weaker technically from the onset following a pull-back from overhead resistance located at $101.87, even though this morning’s economic news was worse than forecast.

 

Hedge fund and mutual fund redemptions are resulting in just about all asset classes being sold including mortgage bonds.

 

Sales proceeds are mostly being parked into U.S. Treasuries as investors engage in a ‘flight to quality.’

 

Jobless Claims increased by 15,000 in the latest week to 478,000 vs. expectations for a slight rise to 465,000 claims from the prior week’s upwardly revised total of 463,000.

 

However, the four-week moving average declined by 4,500 to 480,250 claims.

 

 

The four-week moving average for continuing claims increased by 44,250 to 3.68 million to reach their highest level in more than five years.

 

The claims data is consistent with a labor market that is struggling with an economic recession.

 

RealtyTrac announced foreclosure filings fell by 12% to 265,968 in September from the number of foreclosures filed in August but they were still 21% higher than the year ago period.

 

Meanwhile, Sheila Bair, head of the FDIC testified before the Senate Banking Committee that the FDIC and the Treasury Dept. are working together to develop and implement a plan to prevent avoidable mortgage foreclosures from taking place.

 

The 3-month U.S. dollar LIBOR is sitting at 3.535% but similar inter-bank lending rates are beginning to rise in Asia and Australia, signaling credit markets in the Far East might be tightening rather than loosening up.

 

The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, fell to 2.50% for the first time since Sept. 30.

 

The spread was 2.70% on Tuesday and was 3.64% on October 10.

 

The stock market was buffeted with selling from investors concerned about the health of the economy and from those who went bargain hunting for beaten down blue-chip stocks.

 

The market finished ‘mixed’ after a large 552 point swing in the Dow that resulted in a 172 point gain and close at 8,691.

 

The broader S&P 500 Index picked up 11 points to end at 908 while the NASDAQ Composite Index fell 11 points, finishing at 1,603.

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