Investors sold Bonds today and took some profits after the big surge in prices this week. Markets don’t go straight up or straight down so the move lower today wasn’t a big surprise and came without any gloom and doom headlines.
The 3.5% coupon fell 88bp to end at 102.78. Stock markets fluctuated between positive and negative several times during the session and ended with moderate gains but the Dow had its worst week since October 2008 down 6.4%…closing at 10,771.48 up 37.65. The S&P 500 fell 6.5% this week but managed to gain 6.87 to 1,136.43 while the Nasdaq was up 27.56 to 2,483.23 but down 5.3% for the week. The big news today was the record one day move for Gold as it had lost $100 to $1,641/oz before finishing at $1,653/oz down $88. Oil settled at $79.85/barrel down 66 cents falling 9.2% for the week. Next week economic data is plentiful and will give investors a broad look at the economy.
How do you stimulate the economy without spending any money? You do the twist and shuffle. The Federal Reserve announced Wednesday that it would engage in a new policy known as “Operation Twist,” consisting of selling shorter-term Treasuries and using the proceeds to buy longer-term government bonds. The Mortgage Bond markets soared today after the surprise announcement from the Fed saying that it will be purchasing agency Mortgage Backed Securities from the principal payments from its holdings of agency debt and agency Mortgage Backed Securities in agency Mortgage Backed Securities. The move took players by surprise in a big way. The 3.5% coupon jumped 134bp to end at an all-time high of 103.00 The next few trading days will determine if we switch over to the 3% coupon, which finished at 99.81 up 134bp today.Stocks plunged after the Fed statement read that there are significant downside risks to the economy. The Dow lost 283.82, the Nasdaq fell 52.05 to 2,538.19 while the S&P 500 Index dropped 35.33. Oil in after hours trading was last seen at $84.83/barrel down $2.09. Weekly claims will be released tomorrow.
News out of Europe put a dent in the Bond rally and cut into Stock losses, though Bonds did have a positive day. The late day sentiment could carry over into tomorrow’s trading as the news comes out of Europe.
MARKET WRAP: The Bond markets rallied today after last week’s slide but the gains were cut after news from Europe said the IMF, EC and the ECB (Troika) may be close to a deal to bailout Greece. But Mortgage Bonds did end the day to the upside as the 3.5% coupon closed at 101.59 up 50bp, although below resistance. The Dow lost 108.08 to 11,401.01 but it was down 260 points during the session. The S&P 500 fell 11.92 to 1,204.09 while the Nasdaq dropped 9.48 to 2,612.83. There were no economic reports today. Oil settled at $85.70/barrel down $2.26. Tomorrow, Housing Starts and Building Permits will be released. The Fed will begin its 2-day meeting tomorrow.