Mel's Blog

Bonds look like they are being backed into a corner...and something's got to give.  Squeezed between a falling ceiling at the lower trend line and a recently established floor of support, a breakout is imminent.  Which way will  prices break?  We see the path of least resistance being lower, so a locking bias is recommended. 

Initial Jobless Claims was reported at an eight-week high of 342,000, and 20,000 more than expected.  Bonds are trading only slightly better on the news - Why?  Initial Claims is a volatile number and this weaker read on employment provides only temporary relief to a tight labor market, with a 4.4% unemployment rate.  Additionally, reports of a shrinking pool of workers adds to wage based inflation.  In fact, in yesterday's Fed Minutes, which is available on the Hot Links section of the website, the Fed stated that Labor costs might rise more rapidly than expected.  Another concern regarding wage pressured inflation is the decline in productivity.  This means that employers will have to hire more workers to do the same job or pay existing workers more money - again causing pressure on wage based inflation.  

Later today the market will get hit with some additional Bond supply by way of $6-Billion in 10-Year TIPS (Treasury Inflation Protected Securities).  The results of the auction could certainly have an impact on the market, so stay tuned to the Bond page at 1pm ET when the results are released. 

Tomorrow, the Producer Price Index (PPI), which provides a look at wholesale or producer inflation, is scheduled for release.  This  report could spark a market reaction but Traders will likely pay far more attention to the read on Consumer inflation due next Tuesday by way of the Consumer Price Index (CPI) Report.  And after hearing the Fed's concerns on inflation yesterday within the Minutes, you can bet the market will be glued to the CPI release.