Daily Market Commentary
Friday, May 16, 2008 at 8:00 a.m. CST

 
Market Indications .
.
    .
Other Market Indicators
2s/3s Tsy Spread
0.66

-0.03

  DJIA-30
12992.66
+94.28
Dollar Idx
73.35

-0.031

2s/10s Tsy Spread
1.40
0.00
  NASDAQ
2533.73
+37.03
CRB Idx
421.61
-0.39
2s/30s Tsy Spread
2.12
+0.02
  S&P-500
1423.57
+1.06
 
Today's Market Comments and Strategy.

After selling off over the past four sessions, Treasuries rallied Wednesday on a string of worse than expected economic data releases. Early in the day, initial and continuing unemployment claims for the most recent week rose above expectations. This suggests that the labor market remains soft. Empire State Survey showed deterioration in manufacturing conditions in New York, with the general business conditions index falling to -3.2 from 0.6. The NAHB Housing Index fell to 19 in May from 20 in April, just above the record low of 18 reached in December.
 
Meanwhile, in other newsworthy events, given the ongoing debate as to whether or not we are in recession, it is worth noting the comments of NBER’s Martin Feldstein. Last night, he said that the U.S. economy faces various risks and amid mixed economic performance, it is tough to get a clear economic read. Yet, "there is a significant risk that this could turn into a deep recession." He noted that "most measures of the economy peaked in December 2007." Feldstein was asked which way the Fed would move rates next. He replied that it is unlikely rates would move either higher or lower in the near future.

On the day, the front and intermediate end of the curve rallied sharply with yields on the two- and five-year Treasury benchmarks declining by nine and 11 basis points, respectively. On the longer end, yields in the 10- and 30-year sector declined by nine and six basis points, respectively. The yield curve steepened, but it was the five-year sector that clearly led the move higher. 2s-5s actually flattened on the day despite the 3 bp steepening of 2s to 30s. The curve, as measured by the two- to 10-year spread, remained unchanged, ending the day at 140 basis points. In the credit markets, fixed swap spreads tightened by five to six basis points along the curve, leading to narrower spreads across all spread products. U.S. agency bullets, MBS and investment grade corporate securities outperformed on the day. 

Today’s economic calendar commences with the release of April Housing Starts at 8:30 a.m. The preliminary results of the April University of Michigan Consumer Sentiment Survey will be released at 10:00 a.m. At some time during the morning, annual revisions to Factory Orders will be released.


   

May 12 - May 16, 2008: The Week Ahead
Sources: Bloomberg
.

   
Future Fed Expectations
Sources: Bank of America, Bloomberg

.
   
.
   
 
Select Probabilities based on the Futures Market
Probability of 2.00% Fed Funds on June 25, 2008
84%
Probability of 2.00% Fed Funds on August 5, 2008
82%

 

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

* Balance Sheet Solutions, LLC is a member of the FINRA/SIPC.

The information contained herein is prepared by Balance Sheet Solutions, LLC for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Balance Sheet Solutions to discuss your specific situation and objectives.

4450 Weaver Parkway
Warrenville, IL 60555
(800) 782-2431