Mel's Blog

The bond is trading very actively as inflation talk is raising concerns.  The Bond has been pushed back below the dual layer ceiling of resistance at the 25 and 50-day Moving Averages. 

Philadelphia Fed President and voting member "Three Swing" Charlie Plosser came out of the gate with some surly comments early this morning, suggesting the Fed is losing its credibility as an inflation fighter and that monetary policy "should be reversed quickly once the threat from financial markets abates"...meaning that he believes the Fed should take back some of these cuts. 

I have been also saying for sometime and highlighted in my forecast that inflation could be a much bigger threat than many believe, and Plosser seems to agree.  Three Swing Charlie also said "'One cannot and should not ignore other fundamental aspects of policy, especially the tendency for inflation to accelerate when policy is unduly easy..." and "Deviations (in monetary policy) should be temporary and limited and promptly reversed when conditions return to normal...to do otherwise risks eroding central bank credibility and unleashing inflation expectations."  Bonds didn't like any of this talk and have been under some selling pressure so far today.

The ISM Manufacturing Index was reported at  48.3, which was better than expectations of 48.0 and rumors of an even worse reading.  On the news Bonds turned lower, erasing a rebound attempt in prices.  Stocks had been expecting a stinker of a number, so they actually improved from much worse levels after the ISM.

At 2:00pm ET, Fed Governor and known hawk, Randall "The Axe" Kroszner will speak.  Kroszner may also voice his displeasure with the Fed's desire to fight recession at the expense of inflation.  As we have seen already this morning, the market could react to his take on the economy, inflation or Fed monetary policy.  

The Bond is now trading below both the 25 and 50-day Moving Averages...this is not a good signal.  The market is very volatile and prices could make their way back above this dual layer of support, but should prices remain at or lower than present levels I feel a bias towards locking is prudent as prices could erode quickly from these levels.