The RateWatch

Commentary by Bill Brizendine of Melody Capital Markets

The short first week of 2007 produced mixed signals on the economy. On Wednesday and Thursday we found out that: (1) construction spending continued to fall; (2) preliminary indications showed December retail sales falling short of expectation after posting strong gains in November; and, (3) Initial Jobless Claims for the last week of December were higher than expected. Then along came Friday with reports that the unemployment rate remained at a low 4.5% rate while December Employment Growth was higher than anticipated.

All these numbers will, of course, be revised later. Nonetheless, all bets came off for a near-term interest rate cut by the Fed and all the equity market indices suffered losses as traders began to fret about the potential for a rate increase. On the other hand, curiously, the Treasury bond market seemed to take it all in stride as the benchmark 10-year UST yield fell 5 bps for the week, closing at 4.64% on Friday.



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