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Daily Market Commentary

You could say that existing home sales recovered somewhat from April's hefty drop in month-over-month sales (a drop of 2.3% for April), just as you could say that April's -2.3% was a big improvement over March's -7.9% (the worst on record).  The reality is that although it is lessening, the number was still negative, which makes three declines in a row.  The net number of existing home sales has dropped to a level not seen since mid-2003, and inventories are still much higher now, at about 8 months supply, than they were then (about 4 months).  Throw many worries on the financing side into the mix, and we're far from being through this downturn in the housing market.


  Interestingly, the volatility in the sub-prime and CDO markets (as you've read about in the Launchpad) has had an opposite effect of what would be expected on the bond market.  Funds with large positions of declining mortgage bonds are using Treasuries to hedge their exposure as their duration increases...  usually, we would see a flight to quality and declining yields as the housing sector blows up.  You would expect the housing sector should lead to economic worries, lower consumption and declining rates.  Now, however, almost nobody is worried about the strength of the economy (in fact the market is predicting mostly flat Fed Funds rates for the balance of the year) despite the havoc in the housing and CDO markets.  Yields have been rising in the face of these worries as most believe the overall economy is insulated from this sector.



More data to come as New Home sales will be released at 10am.  We are somewhat sceptical of this number, as the new home sellers generally use huge incentives to boost their sales numbers, and average sale prices are not reported with the number.  They are far more aggressive in unloading their excess inventory than individual sellers.



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