Summary
The week at hand is an important one for interest-rate and stock bulls alike.
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Interest Rates
* In prior writings, I opined possible problems for government bond dealers in last week's Treasury refunding auctions. At least the initial distribution of Thursday's auction of new 10-year notes in particular appears to have been a bit problematic.
* The overall refunding entailed three issues totaling $51 billion, to refund approximately $11.4 billion in maturing issues and to raise about $39.6 billion in new cash. Payment for these securities occurs tomorrow.
* Recent respective low yields on Treasury five-, ten- and 30-year maturities took place last Wednesday (2/9), at 3.57%, 3.98% and 4.35%. Last Friday's closes were at respective levels of 3.68%, 4.08% and 4.47%, for sizable low-to-close swings of +11, +10 and +12 basis points.
Already and as expected, the CNBC crowd is beginning to champion the idea the Federal Open Market Committee may not raise the Federal Funds Rate another quarter point at its next meeting, scheduled for 3/22. So far at least, this conviction has not taken hold in the fed funds futures market.
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FEDERAL FUNDS FUTURES
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02/11 01/28 Scheduled
Contract Close Close Change FOMC Meetings
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Feb. '05 2.50% 2.50% 0bp Feb. 1-2
Mar. '05 2.60% 2.59% 1bp Mar. 22
Apr. '05 2.77% 2.77% 0bp No Meeting
May '05 2.98% 2.97% 1bp May 3
June '05 3.01% 2.99% 2bp June 29-30
July '05 3.17% 3.13% 4bp No Meeting
Aug. '05 3.25% 3.22% 3bp Aug. 9
Sep. '05 3.33% 3.29% 4bp Sep. 20
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* For the second consecutive statement week, Federal Reserve custody holdings of Treasury securities for foreign central banks registered a significant decline. These holdings fell a total of almost $16.4 billion over the last two weeks, although holdings of agency obligations rose about $9.2 billion during the same period.
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MARKETABLE SECURITIES HELD IN CUSTODY
BY THE FEDERAL RESERVE FOR FOREIGN
OFFICIAL AND INTERNATIONAL ACCOUNTS
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Year Earlier
Week ----------------
Ended Treasury Agency Treasury Agency
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2005
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02/09 1053668 286567 896607 228941
Week -8132 +1872
Y/Y +157061 +57626
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02/02 1061800 284695 889468 227481
Week -8248 +7373
Y/Y +172332 +57214
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2004
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12/29 1062209 273571 855872 210869
Y/Y +206337 +62702
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2003
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12/31 855872 210869 686745 163943
Y/Y +169127 +46926
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The Stock Market
* Although last week was somewhat mixed, my seven-measure tracking group managed a little forward progress during the period, finishing last Friday with an average loss of 1.9% from its components' respective 2004 high closes. (As of Friday, 2/4, the respective average and median declines from the 2004 highs were 2.0% and 1.3%.)
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SELECTED STOCK-MARKET RETURNS
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02/11 2004
2005 High 02/11 Vs.
Close Close /Date 2004 High
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NYSE Comp. 7262 7254 12/30 +0.1%
DJIA 10796 10855 12/28 -0.5%
S&P 500 1205 1214 12/30 -0.7%
Wilsh. 5000 11875 11988 12/30 -0.9%
Value Line 396 405 12/30 -2.2%
Russ. 2000 635 655 12/28 -3.1%
NASDAQ 100 1531 1625 12/29 -5.8%
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Average -1.9%
Median -0.9%
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* As the above table indicates, the NYSE Composite actually set a new high last week. However, the Value Line, Russell 2000 and NASDAQ 100 all fell slightly. This kind of divergence is not at all inconsistent with the major broadening top I believe the market continues to make.
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