Daily Market Commentary

Daily Market Commentary
Thursday, July 29, 2010 at 8:00 a.m. CST

Market Indications

Other Market Indicators
2s/5s Tsy Spread	1.15	0.00	DJIA-30	10525.43	+100.81	Dollar Idx	81.98	-0.15
2s/10s Tsy Spread	2.41	0.00	NASDAQ	2296.43	+26.96	CRB Idx	267.42	+0.77
2s/30s Tsy Spread	3.44	+0.01	S&P-500	1115.01	+12.35

Today's Market Comments and Strategy

Treasuries rallied sharply yesterday with the belly of the curve leading the way. The five and seven year Treasury notes rallied by 8-9 basis points, while the front and long end rallied by only 1.5 basis points. The rally was driven by weaker than expected durable goods orders and the prospects of slower growth as suggested by the Fed’s Beige book. The Atlanta and Chicago Fed banks reported a slowdown in growth, the Cleveland and Kansas City Fed banks reported stalled conditions. In the credit markets, three-month Libor continues to set lower, while swap spreads continued to narrow with twos through fives tightening by 3-5 basis points. The higher yielding fixed income sectors continue to be well bid as investors grab for yield at any reasonable cost. Equities snapped for a day win streak, posting modest losses on the trading session. The trade weighted dollar continues to be offered as investors grow more comfortable with risk assets.

This morning, the USD is selling the theme d'jour with California in fiscal emergency and the Wall Street Journal article, where Moody’s is suggesting that the U.S. needs to articulate a ‘credible fiscal consolidation plan’ in order to retain its AAA rating. EUR/ USD is trading at $1.30, well off its lows of $1.19 reached 06/03/2010.

Yesterday, the five year auction came through where it was trading with very good results with a bid-cover ratio of 3.06, higher than the 2.64 moving average The Treasury is scheduled to auction $29 billion (-$1 billion from June) in sevens today. Recent auctions have generally tailed. Final investor demand has been better in the seven year sector compared with twos and fives.

Today, Jobless claims fell to 457 thousand (CF 460 thousand) in the week ending July 24 from 468 thousand a week prior. Continuing claims rose by 65 thousand to 4.5 million. The four-week moving average of claims, dropped to 452,500 last week, the lowest since May 8th. The numbers were pretty much in line with expectations, but the numbers do suggest a very sluggish job recovery, which in turn portends weak consumer spending going forward.

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July 26- July 30, 2010: The Week Ahead
Sources: Bloomberg

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Future Fed Expectations
Sources: Bloomberg

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Select Probabilities based on the Futures
Probability of No Change (0-0.25%) Fed Funds on August 10, 2010	100%
Probability of No Change (0-0.25%) Fed Funds on September 21, 2010	93%

**All quoted rates are indications and are subject to change without notice.

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