Higher yeild on 10yr T Bill

Tuesday, November 06, 2007

ECONOMIC DATA / NEWS

Citi knew they needed to make a quick move to assuage investors’ fears, so they named Richard Stuckey to oversee their subprime investments.  However, the appointment is probably too late to fix the company’s issues permeating from previous poor investment decisions.  The confidence really comes from the belief that he will help assure that losses of this magnitude do not occur in the future.

And while banks and investment firms continue to set record losses, oil can’t stop setting record highs.  Light, sweet crude hit $96.60 per barrel this morning.  If you had asked me if prices were going to hit $100 per barrel in the next five years, I would have said it was a long-shot.  If you had said by the end of this year, I would have said impossible.  Now all of a sudden it seems to be a question of whether it will be this week or next.  There has been one scare after another regarding shortages or potential shortages.  The latest problem is slowdowns in shipments from Mexico due to inclement weather.  Also, bombings in Afghanistan and attacks in Yemen are stirring concerns that supplies from the Middle East could be affected.  Although it has had little effect to this point, oil prices could eventually threaten to push inflation higher.  At the same time, it could also slow economic growth if costs become too great.  It will play a part in the Fed’s next few rate decisions, especially if it continues to rise.

TECHNICAL ANALYSIS

MBS were even worse about a half hour ago, but they have recouped some losses since stocks have turned negative.  The FNMA 30-year 6.0% is down 6bp, which places it under the 100.62 support level.  Our next support is the 25-day moving average, just 7bp below the current price.  We have to be very aware of the evening star formation that has been formed by the past three candlesticks.  This is a strong indication of a shift toward downward momentum.  The stochastics seem to concur, as they have only just begun to turn lower.

The 10-year Treasury yield is up at 4.35%.  There is minimal resistance from the 10-day moving average, but that probably won’t hold for much longer.  Unlike the FNMA, the stochastics for the 10-year are still in overbought territory, and have not even crossed upward yet.  We could see the yield jump as high as 4.50% before making its next surge lower.

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