Last Friday's employment numbers for January -- +36k jobs vs. +140 consensus coupled with a falling unemployment rate --9.0% vs.9.4% for December and consensus of 9.6%, really put the market in a tizzy. How can only 36k jobs be created but have the unemployment rate fall to 9%.....a lot of theories but no real answers. The best theory is that people have given up for the time being and are off the radar. Seasonals could also be at play. We will have to see the numbers over the next several months to truly get the answer. Economists all agree that these numbers can vary wildly from month to month and having the markets rely on this one economic bit of news is more than likely pure folly. Ah Wall St.....
Well the outcome has not been pretty. Govies have given it up over the last few trading sessions with the 10 year range getting hit the hardest. Treasuries declined from a 3.55 yld on the close of 2/03 to a 3.73 today 2/08. The 30 year fared better by only losing 8 bps (4.67 / 4.75) Munis outperformed in the 10 yr sector as yields rose from a 3.35 to a 3.39 on 2/08. But the ratios worsened from 94% to 91%. But light supply in the tax exempt arena was the key factor in saving munis.
The impetus for the treasury selloff has been the auctions this week along with a lot of Fed speak. Today the 3 year, normally a sure fired good auction, really spit the bit and sent the treasury market into it's spiral. Lack of real buyers set the trend. Will this follow into Wednesday's 10 yr and the 30 yr on Thursday? We will wait and see. Possibly with the blowoff a large enough market concession has been built in in order to create better demand. If it does not hold through a 3.85 yld, then the 10 year yield could rise to a 4.25%. Look out world the cruelest month could rear it's ugly head once again. Not a good way to start a new year.
Munis seem to be back in their own little world with buyers continuing to buy top flight credits. Retail continues to buy out through 15 years and then look for quality credits yielding 5+% in the 20-30 year range. Even after the market selloff , NYC TFAs have held there own in the 20 and 25 year maturities. But supply will be back and that is the conundrum. Will there be enough demand to take in the inevitable increase of supply?
Tomorrow the muni "mini series" continues in D.C. with a cavalcade of pundits in front of Government. Just more noise for buyers to sift through and keep all of us on the edge. Rumors are that Ms. Whitney refused to come but was possibly being served a subpoena to appear !! Take that you naysayer!! Anyway the white knight has spoken.
My apologies to William Shakespeare and T.S. Eliot.
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