JP Conklin 704-887-9880 office jp.conklin@pensfordfinancial.com www.pensfordfinancial.
com Leveling the Playing Field March 26, 2012 _______________________________________________________________________ Congratulations to the Tar Heels for finally showing the heart I thought was missing all season. Rates retraced some of the previous weeks spike as some skepticism crept back in the markets. Labor data is showing signs of strength, but there is still plenty of overall weakness. The 10yr Treasury traded at 2.37%, up more than 0.30% in a week. But by Fridays close, it had settled back down to 2.23%. As we continue to move closer to election time, dont be surprised if debates include a more in-depth look at the Bureau of Labor Statistics (BLS) as Republican challengers point out (rightfully so) that just because someone hasnt looked for a job in 4 weeks doesnt really mean they shouldnt be counted in the unemployment rate. President Obama will have a tough time getting re-elected if the general population can be convinced that the real unemployment rate is in double digits. If we add about 150k jobs per month between now and the election, the unemployment rate should come in right at 8.00% at the beginning of November. I wonder if Obama can put Coach Calipari in charge of the unemployment data? Fitch fired a warning shot across the bow of student loans, a market that just surpassed the $1 trillion mark. Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans. Bottom line is that US taxpayers effectively guarantee this debt so other than you paying for any default, there shouldnt be any market disruption; however, the real concern is that defaults are spiking while interest rates at 0%. Borrowers arent having trouble paying because rates are too high, they are having trouble paying because the economy stinks and they cant get jobs.
LIBOR Outlook We dont see any reason to change this outlook, but for the first time in a long time we are actually hearing increased chatter around the Fed ultimately hiking sooner than they have publicly claimed they would. Stay tuned.
Fixed Rate Outlook Heres the most recent Bloomberg survey of about 70 economists. We believe the Treasury bubble will ultimately burst, but dont think that is happening right now. The government is committed to keeping the long end down, and not just for our sake. But for the sake of the election, and for the sake of the US Treasury Depts interest expense on Treasury bonds. Bill Gross was on tv last week saying he believes the Fed will begin to hint at QE3 at the next meeting. This would boost stocks heading into the election cycle.
10 Year Note # of Replies Median Average High Forecast Low Forecast
1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 71 71 71 70 58 53 48 2.00% 2.20% 2.30% 2.46% 2.58% 2.74% 2.85% 2.05% 2.19% 2.36% 2.53% 2.69% 2.87% 3.05% 3.15% 3.15% 3.45% 3.88% 4.12% 4.43% 4.80% 1.50% 1.75% 1.90% 2.00% 2.00% 2.00% 2.40%
6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013
Median Average
High Forecast
Low Forecast
This Week An incredible amount of Fed-speak this week, kicked off by Chairman Bernankes 8am Monday morning economic outlook in a speech to business economists. And focus remains on Eurozone concerns remain now that markets remembered that, you know, central banks dont tell the truth.
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ECONOMIC CALENDAR
Economic Data Day Monday Time 8:30AM 10:00AM 10:00AM 10:30AM Tuesday 9:00AM 10:00AM 10:00AM Wednesday 7:00AM 8:30AM 8:30AM Thursday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 11:00AM Friday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 9:45AM 9:55AM Report Chicago Fed Nat Activity Index Pending Home Sales (MoM) Pending Home Sales (YoY) Dallas Fed Manufacturing Activity Case-Shiller 20-city Index Consumer Confidence Richmond Fed Manufacturing Index MBA Mortgage Applications Durable Goods Orders Durables ex Transportation Initial Jobless Claims Continuing Claims GDP (QoQ) GDP Price Index Personal Consumption Core PCE (QoQ) Kansas City Fed Manufacturing Activity Personal Income Personal Spending PCE Deflator PCE Core (MoM) PCE Core (YoY) Chicago Purchasing Manager U. of Michigan Confidence 3.0% 1.8% 350k 3350k 3.0% 0.9% 2.1% 1.3% 11 0.4% 0.6% 0.3% 0.1% 1.9% 63.0 74.7 16.0 -4.0% 70.0 18 1.0% Forecast Previous 0.22 2.0% 10.3% 17.8 -4.0% 70.8 20 -7.4% -4.0% -3.2% 348k 3352k 3.0% 0.9% 2.1% 1.3% 13 0.3% 0.2% 0.2% 0.2% 1.9% 64.0 74.3
Speeches and Events Day Monday Time 7:00AM 8:00AM Tuesday 10:00AM 10:00AM 12:35PM 12:45PM 1:20PM 3:45PM 9:00PM Thursday 10:00AM 12:15PM 12:45PM 1:00PM 6:45PM Report Fed's Plosser speaks on Monetary Policy Fed's Bernanke speaks to Business Economists Fed's Dudley speaks at Hearing on Eurozone Aid Fed's Kamin testifies at Hearing on Eurozone Aid Fed's Rosengren speaks Fed's Bernanke gives Lecture at George Washington Fed's Fisher speaks Fed's Duke speaks via videoconference on Sustainable Community Fed's Bullard speaks at Tsinghua University Fed's Braunstein testifies on Mobile Payments Fed's Lockhart speaks on Global Economy Fed's Bernanke gives Lecture at George Washington Fed's Plosser speaks on Economic Outlook Fed's Lacker speaks to Bankers Wilmington, DE Charlotte, NC Atlanta, GA Choudrant, LA Washington, DC Washington, DC London, England Place Paris, France
Treasury Auctions Day Tuesday Wednesday Thursday Time 1:00PM 1:00PM 1:00PM 2-year Treasury 5-year Treasury 7-year Treasury Report Size $35B $35B $29B
