The Day Ahead: Early Close for Bond Market


The risk trade continued unabated overnight after equities jumped to their highest levels in nearly three years on Wednesday. The tech sector added fuel to the fire in after hours trading last night when Apple posted an 83% jump in sales and reported profits that were close to double the Q1 2010 level. Consequently Treasury yields drifted higher and the U.S. dollar weakened as cash
flowed into the equity market. Stocks are however off their overnight session highs and Treasuries are making a modest comeback after finding support in a cluster of key inflection levels between 3.40 and 3.42%.

The 10-year note is +6/32 at 102-00 yielding 3.385% after reaching 3.42% last night. SP 500 futures are up 6.5 points at 1335- another 0.49% – while Dow futures are another 56 points higher at 12,444. SP futures hit 1337 early in the U.S. session.  Global markets also remain in the green. Japan’s Nikkei 225 closed 0.82% higher, Hong Kong’s Hang Seng grew 1.01%, and China’s Shanghai climbed 0.67%. The ongoing European session has London’s FTSE 100 up 0.24%, while France’s CAC-40 is 0.68% higher and Germany’s DAX is 0.80% higher.

Light crude oil rose 0.65% overnight to $112.16 per barrel and gold prices moved up 0.09% to $1,498.90 per ounce. 

Economists at BMO Capital Markets sought to temper the excitement in this morning’s research note. 

“While the earnings headlines are good, note that 75% of the SP 500 companies so far to report Q1 results have beaten expectations, which is pretty average by recent standards,” they said.

The FNCL 4.5 MBS starts the day higher and wider, adding 3/32 to yesterday’s 5pm “going out” marks. Yield spreads are however slightly wider.

Key Events Today:

8:30 – The four-week average of Initial Jobless Claims has remained below 400k for seven straight now but markets weren’t happy when the last survey showed weekly claims jump 27k to 412k – the highest figure since the week ending Feb. 12. The Labor Dept. attributed the jump to seasonal issues, so economists are hoping the figure retraces this week. The Street’s forecast is 390k, consistent with the four-week average. 

“Initial claims needs to remain below 375k in order to see sustainable and robust employment growth in nonfarm payrolls,” say economists at BBVA, who noted the pace of employment growth is merely gradual right now. “We expect initial claims to remain around 400k.”

10:00 – The Empire Fed index beat expectations last week, prompting forecasters to hope the trend extends to the rest of the Northeast. Economists look for the Philadelphia Fed Index to come in at a robust 36.0 in April – well above the zero threshold indicating growth. However, that score would represent a sizable drop from the 43.4 recorded in March – the strongest reading in 26 years.

“Several uncertainties, such as higher input costs and a potential shortage of Japanese-manufactured parts could slow down the pace of expansion in the manufacturing sector,” said economists at Nomura Global Economics. “Against this backdrop, we expect the Philadelphia Fed’s business sentiment index of manufacturers to decline to 32.0 in April from 43.4 previously.”

10:00 – Leading Economic Indicators, a composite measure designed to track turning points in the economy, is set to rise 0.3% in March. The first two months of the first-quarter saw gains of 0.1% and 0.8%, so this would be roughly in line. Economists reacted to the previous survey suggesting that the index was pointing to a strong economic recovery.

“The greatest positive contribution is an improvement in vendor performance from the ISM manufacturing [index], which will contributed about 0.5 percentage points,” said economists at Nomura. “An equivalent drag on the leading index is the drop in the University of Michigan’s index of consumer expectations.”

10:00 – The Federal Housing Finance Agency’s Housing Price Index is forecast to show prices remain below last year’s levels. The index last said prices were 16.5% below their peak in April 2007. According to economists at BBVA, prices continue to decline due to high foreclosure rates and banks short-selling in the housing market.

Treasury Auctions:
11:30 – 5-Year TIPS


SIFMA recommends a 2pm close in observance of tomorrow’s Good Friday holiday.

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