Mel's Blog

IZZY came and Bonds went.  Mortgage Bonds are starting 2008 with a bang in response to a very sloppy Institute of Supply Management Index Report.  The reading for December was 47.7, which is way below expectations of 50.5 and the lowest reading for 2007.  A reading above 42 still indicates expansion in the overall economy, but the report shows contraction in the manufacturing sector.  On the news, Stocks moved sharply lower and Bonds rallied higher.

At 2pm ET, the Fed will release the minutes from its December 11th policy meeting.  The decision to cut the Fed Funds Rate by .25% at the last meeting was not unanimous among the voting Fed members, so the minutes could reflect some interesting philosophical differences in monetary policy.  Speaking of which, there are some changes at the Fed regarding the rotation of voting members starting the new year and the overall bias may be more hawkish, making the Fed stingier towards rate cuts. 

While today's highlight is the Fed Minutes, tomorrow's ADP Report will give clues on Friday's Jobs Report.  With Bond prices at lofty levels, challenging 2 1/2 year highs, Friday's Jobs report could be the catalyst that causes rates to improve towards refi-mania levels or causes pricing to give up its recent gains.  Stay tuned as tomorrow I will lay out my Jobs Report strategy heading into Friday's important release.