Mel's Blog

Bond prices are trading higher this morning, but off of the best levels of the day.  This as a result of stocks moving lower on Japanese Yen strength and unwinding of the "carry trade"

Also adding a bid to the Bond market was a weak reading on Retail Sales, reported at 0.1% and less than expectations of 0.3%.  When excluding auto sales, which happened to be strong in February, Retail Sales were -0.1% - the first decline since last October.  Even though this is a weak number, it must be taken with a grain of salt since February was very cold across most of the nation and likely kept many people away from shopping malls.  Additionally, the back to back soft readings in Retail Sales in both January and February shouldn't be viewed as a negative economic trend just yet, because income growth remains strong as evidenced by the Personal Income report last week, and the unemployment rate remains at a low 4.5%.  

The drama in the sub-prime market continues as New Century's stock has been delisted by the New York Stock Exchange because the stock is "no longer suitable for continued listing on the NYSE".  The shares of New Century will now likely trade on the Pink Sheets following the delisting.  For those of you familiar with trading stocks, you know that seeing a company's shares pushed down to the Pink Sheets is definitely not a good sign for the longer term outlook of the company.

Some good news on Housing to share with your clients and relationship partners.  David Lareah, the Chief Economist of the National Association of Realtors said a recovery in the nation's Housing market is "likely" this year.  We have been saying that August of 2006 looks like the bottom in housing to us.

On a technical level, bond prices have forged their way back above the Trend Line which will now continue to be a line of support.  However, a very stubborn layer of resistance lies just overhead at the $98.38 - $98.41 level.  In fact, prices touched this ceiling earlier today and have since backed off.  The Bond does remain overbought and ripe for a reversal lower, so we need to be very cautious during these volatile times.  We will float here, but with a finger close to the lock trigger as traders likely won't place any big bets one way or another ahead of two reads on inflation by way of Thursday's Producer Price Index (PPI) and the more important Consumer Price Index (CPI) on Friday.