It is a familiar pattern.
Once again bond and mortgage-backed security prices are tumbling lower out-of-the-gate as primary dealers actively "cheapen-up" the credit markets in front of a deluge of new incoming supply from the government.
Next week, beginning on Tuesday and running through Thursday, Uncle Sam will be in the credit markets looking to borrow roughly $101 billion in the form of two-, five- and seven-year Treasury notes. As dealers scramble to make space in their already overflowing portfolios many find it necessary to sell parts of their existing stock of Treasury securities -- compounding the existing imbalance between supply and demand. As you well know-- when supply exceeds demand -- prices fall - and in our world when prices fall - interest rates rise.
The Labor Department reported this morning that first-time jobless benefit claims for the week ended June 13th rose by 3,000. That particular snippet of macro-economic data was generally considered inconsequential as far as most mortgage-investors were concerned. Investors weren't so quick to wave off additional detail in the report that showed the number of people staying on the benefit rolls after collecting an initial week of benefits fell by 148,000, marking the first weekly improvement in this measure of labor market conditions since January. In another sign labor market weakness may be easing, the 4-week moving average for new claims, considered to be a better gauge of underlying trends because it smoothes out week-to-week volatility, dropped to its lowest level since February 14th.
The initial jobless claims data did not independently create this morning's selling pressure - it just gave investors another reason not to buy.
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