Construction spending dug a deeper hole in February, falling 1.1% — worse than the 0.8% decline in January.  It was also below expectations of a 0.5% gain.

After a slow start, the Dow Jones zoomed out of negative territory, posting good gains.  The 10-year note yield got a boost from from the 17 eurozone countries that reported that manufacturing activity fell in March.  The 10-year yield closed at 2.19%, down from 2.22% on Friday.

Tuesday was a bad day for everyone.  Stocks fell shortly after opening when factory orders in February rose only 1.3% instead of the predicted 1.4%.  They fell 1.1% in January.  The 10-year Treasury note was subjected to selling, sending the yield, which moves inversely to price, up.

At 2:00 p.m. EDT, the minutes of the FOMC meeting on March 13 were released, and no one was happy.  The minutes basically stated that there will be no additional stimulus unless the economy slows or inflation rises above the Fed’s watershed of 2.0%.  In addition, most Committee members agreed that the Fed should hold “an accommodative stance” and keep rates low through 2014.

Have you heard this before?  The opinions of the FOMC members were basically unchanged, as they have been during the past few months.  It is difficult to believe that the meeting’s minutes were news.  Yet, stock prices tumbled, and the 10-year note yield jumped nine basis points, closing at 2.28%.

Wednesday morning stocks were still reeling from the FOMC minutes, and there was no news to prop them up.  ADP, the payroll company, said 209,000 jobs were added to private sector payrolls in March.  That was somewhat lower than the 215,000 additions economists expect.  The ISM index on the service sector also disappointed, dropping to 56 from 57.3.  A reading of 56.4 was predicted.

Investors were also forced to revisit Europe’s sovereign debt problems due to weak response to a bond sale in Spain.  U.S. Treasuries appeared to be the investment of choice for Europeans and Asians as well as for domestic investors.  Two of the three major stock indices lost 1% each, while the 10-year note yield closed at 2.24%.

Yogi Berra summed it up: “It’s déjà vu all over again.”  On Thursday morning stocks were down huge in pre-market trading due to worries about the economic situation in Europe, and specifically about Spain’s economic stability.  This has some economists wondering if it will become the next Greece.  Investors also paused to consider what the economy would look like if the Fed pulled the plug on economic stimulus.

Fortunately, Wall Street responded to a positive report on first-time jobless claims for the week ended March 31.  A total of 357,000 filed for benefits — 6,000 less than in the previous week.  The more accurate four-week average, which smoothes weekly volatility, fell by 4,250 to 361,750.  Continued claims, those filing for a second week of benefits, fell to 3.3 million.  And outsource firm Challenger, Gray & Christmas announced that planned job cuts in March fell 8.8%.

When the dust settled, the bond market had a good day.  The 10-year yield closed at 2.18%, down six basis points from Wednesday.

The March employment report, released Friday morning, came in well below expectations.  Only 150,000 jobs were added to nonfarm payrolls when 215,000 were expected.  This was the smallest increase in the past five months, and it had investors running for the safe haven of Treasuries.  Buying was strong, even though volume was light due to Good Friday.  The unemployment rate dipped to 8.2%, but the decline was attributed to job seekers dropping out of the labor market.  The 10-year note yield dropped 13 basis points to close at 2.05%.

Mortgage applications for the week ended March 30 showed good growth, versus the previous week, according to the Mortgage Bankers Association.  Purchase apps were up 7.2%, while refis rose 4.0%.

Today should be interesting, as this will be the first chance for Wall Street to react to Friday’s employment report.  The NYSE was closed on Good Friday.  Stocks will likely post losses, but there are economists that believe Friday’s report will force the Fed to provide more stimulus.  Treasuries made their statement Friday, and unless there is a big event they are likely to stay on the sidelines.  

Tuesday offers results on wholesale inventories for February — generally a yawner for the markets.

Wednesday could see some action, as the Fed will release the Beige Book, an economic overview of the 12 federal districts in the U.S.  If the report shows economic slowing in most districts, stocks will fall and bonds will likely rally, lowering the yield.  Or the reverse could be true.  Mixed data would probably result in a status quo.  Earlier, import/export price indices for March will be released, but more often than not, they have little effect on the markets.

First-time unemployment claims for the week ended April 7 are due early Thursday as is the producer price index.  Last week claims dropped to 359,000 — their lowest level in four years, but they remained higher than the 350,000 expected.  Stocks sold.  Claims should continue dropping, but whether they meet, beat or come in below forecasts will determine how the markets react.  Another drop in claims should slow buying in Treasuries, but it’s not a sure thing.

The producer price index for March is also due.  This check on wholesale inflation has seen prices edge up, but the core rate, which the Fed watches, eliminates volatile food and energy prices.  In a perfect world, increases should hold at levels of 0.1% or 0.2%.

The trade balance for February will also be released.  Since October it has skyrocketed from $43.5 billion to an unrevised $52.6 billion in February.  Although the markets probably would like to see the deficit shrink, they have taken this news well over the past few months.

Friday offers two market movers that can affect trading; the consumer price index and the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for April.

Like the producer price index, the consumer price index has edged up, but the more important core index, which monitors inflation, rose only 0.1% in February.  As long as the core travels between 0% and 0.2%, the bond market can live with that.  Should it go higher and stay there, traders would fear that inflation could rob bonds of their value over time, and selling would likely result.

This was not new news.  Bernanke first mentioned rates would remain low well into 2014 more than two months ago.  But investors, hungry for reasons to buy, took the bait, pushing the Dow Jones to its highest close since January 3.  Of course, U.S. Treasuries were punished.  The 10-year note yield, which moves in the opposite direction of price, jumped early, hitting 2.29%.  It later trimmed its losses, closing at 2.25% — just one basis point higher than Friday’s close.  The only release Monday saw pending home sales in February fall 0.5% after climbing 2.0% the previous month.

Two disappointing economic reports released Tuesday morning had investors heading back to the safety of Treasuries.  The S&P Case-Shiller report on home prices in the 20 largest U.S. cities found prices at a 10-year low in January.  They were down 3.8%, following a 4.1% decline in December.

Consumer confidence in March dropped to70.2 from 71.6 in February.  These lower-than-expected results raised doubts about the speed of economic recovery.  The three major stock indices ended the session in the red, while the yield on the benchmark 10-year note closed at 2.19%, its lowest level in two weeks.

Durable goods orders for February, released Wednesday morning, were up from January’s poor showing, but they missed analysts’ expectations.  They rose 2.2% on orders for airplanes and defense-related items.  Excluding transportation, orders were up 1.6%.  Wall Street immediately began to worry about a slowing economy both here and abroad.  Trading was light as investors waited for 1^stquarter results from major corporations, which should start coming in this week.

The three major stock indices each lost in the neighborhood of 0.50%.  The yield on the 10-year note edged up to 2.20%.

On Thursday stocks opened down on the first-time claims report for the week ended March 24.  Claims dropped by 5,000 from the previous week, coming in at 359,000 — a four-year low.  But that was less than the 350,000 analysts predicted.  C’mon, man!

The 4^thquarter GDP final revision rose to 3.0%, as expected.  But quarter-to-quarter before-tax profits fell 4% — the biggest drop since 4th Q 2010.  When adding these concerns to the durable goods report, consumer confidence, a drop in home prices, and China’s questionable economic condition, it’s not surprising that stocks were down, although the Dow did move into positive territory after Treasuries closed.  Stocks also fell in Europe’s largest stock exchanges and in Shanghai, Hong Kong and Japan.

Bond traders took advantage of the situation and bought Treasuries.  The yield on the 10-year note fell to 2.16%.  A month ago it hit 1.98%.

Friday offered mostly upbeat economic news.  Personal income in February rose 0.2%, the same as in January, but personal spending jumped to 0.8% from the previous 0.4%, upping the chances that consumers will increase their spending.  The PCE, personal consumption expenditures, a major gauge of inflation, fell to 0.1%, which was a plus for the bond market.

The Chicago PMI index on manufacturing conditions in March fell to 62.2 from 64.0 the previous month.  One of the main drags on the index was a nearly 6% decline in employment from the previous month in the upper Midwest region included in the index.  The last report for March was the final Thomson Reuters/University of Michigan consumer sentiment survey.  It rose to 76.2, its highest level since February 2011.

U.S. Treasuries suffered their second straight month of losses in March, after flying high since August.  The debt crisis in Europe and a less-than-optimistic economic outlook for the U.S. had investors buying safe-haven Treasuries by the fistful, as mortgage rates dropped to record lows.  But the need for Treasuries cooled as the economies of Europe and the U.S. improved, a booming stock market and higher-paying options, such as corporate bonds, became available.

The 10-year note, which had held steady for most of Friday’s session, saw selling in the last hour, pushing the yield up to 2.22% at close.

The Mortgage Bankers Association reported that applications to refinance dropped for the sixth straight week, falling 4.6%.  It also noted that there was a 12% drop in the refinancing of government-backed mortgages.  Conventional refis dipped 3.4%.  Purchase apps, however, rose 3% during the week ended March 23.

This week focuses on the employment situation.  The ISM index on nationwide manufacturing conditions in March could edge up a point or so from the 52.4 in February.  Big moves in the ISM either way can affect the markets because manufacturing, like employment, has a long way to go before it hits it pre-recession stride.  But a major gain or loss is not expected.

Construction spending for February is not likely to climb, as new homes sales have been down.  Construction spending fell 0.1% in January.

Tuesday features the minutes from the March 13 meeting of the FOMC.  It’s difficult to believe that anything new will come out of the minutes, since there has been a lot of employment and rate talk released since then.  The markets, however, are always on the lookout for even a smidgeon of news, although it’s unlikely they will find one.

February factory orders will also be released but should have little impact.  January orders dropped 1.0%, but it would take a huge move to spur buying or selling in Treasuries.

ADP, the payroll company, issues its data regarding nonfarm payroll additions in March on Wednesday.  If high numbers are released, that could affect the markets, as would low numbers.  The correlation between ADP numbers and the actual report is seldom meaningful.  The other economic indicator is the March ISM index on the service sector.  Even though this sector employs far more than manufacturing, the index is fairly stable and seldom moves the market.

First-time unemployment claims for the week ended March31 are due Thursday.  Although they have been moving downward, they have a long way to go before economists will admit that job market recovery is here to stay.  An improvement over last week could hurt Treasuries, but it is more important to meet analysts’ expectations, which are not yet available.

The March employment report is due Friday, but it comes with a bit of a twist.  The NYSE exchange will be closed in observance of Good Friday, leaving only the bond markets to react.  On top of that, the report is expected to contain positive data.

Analysts believe that somewhere around 235,000 jobs will have been added to nonfarm payrolls.  That’s more than the unrevised 227,000 added in February and a lot closer to the 250,000 new jobs per month that economists want to see.  In addition, the unemployment rate could edge down to 8.2%.  This could ignite fierce selling in bonds.  Stocks could celebrate the following Monday, or not.

Last Monday was a no-news, low-volume day as investors waited for the Fed meeting on Tuesday.  Investors were eagerly awaiting the results of recent bank stress tests and the Fed’s assessment of the economy during the upcoming months.  The 10-year note yield, which moves inversely to price, closed at 2.03%.

Tuesday morning a positive report on February retail sales increased selling in Treasuries.  Sales rose 1.1% — a five-month high.  Excluding autos, sales rose 0.9%, and excluding autos and gas, sales were up 0.6%.  Many general merchandise retailers also reported solid gains.  Separately, business inventories rose 0.7% in January.  This news led to strong selling in Treasuries, which only heightened after the meeting of the Fed.

In the afternoon, the Fed concluded its meeting without stirring the pot — or so it seemed.  Chairman Bernanke noted that, while there is more positive news on jobs, unemployment remains elevated, the GDP is still weak and the housing market is operating below par.  For these reasons, the Fed still wants to hold the fed funds rate at the current rock-bottom level well into 2014 to encourage borrowing and lending.

Regarding inflation, Bernanke said he and the committee want to keep it at 2.00% or less, excluding food and energy prices.  He noted that, while the worldwide economic situation has improved, “significant downside risks remain.”  There was, however, no hint of extending its bond purchase programs or introducing new ones.  After these hopes were trashed, the yield on the 10-year note closed at 2.10% — its highest level since Dec. 1, 2011.

When the markets opened Wednesday — whoa!  The yield on the 10-year was climbing like a fireman up a ladder.  With more positive than negative economic reports released lately, a more upbeat economic outlook from the Fed and big gains on Wall Street the previous day, investors sold bonds en masse.  The yield on the 10-year rose 15 basis points to close at 2.28% — its highest level since October.  Stocks posted good gains early, but they lost their luster as the day wore on.

The only economic report showed the export price index rose 0.4% in February, but import prices (excluding oil) fell 0.1%.  This report had no influence on trading, as selling in Treasuries continued.

Thursday morning another battery of positive economic reports sent stock prices up, but not dramatically.  First-time unemployment claims for the week ended March 10 hit a 4-year low, which was also visited in February.  Claims fell by 81,000 from the previous week, coming in at 351,000.  Continuing claims, those filing for a second week of benefits, numbered 3.34 million, but were down 81,000 from the previous week.

February’s producer price index, which checks on inflation at the wholesale level, rose 0.4% — up from the previous gain of 0.1%.  The core rate, however, rose 0.2%, which was half the gain in January.  The core rate, which is the rate the Fed watches, eliminates food and energy costs.

The other two reports zeroed in on local manufacturing.  The NY Empire State index for March rose to 20.2 from 19.5 in February.  The Philly Fed index climbed to 12.5 — up from the previous 10.2 reading.  While both these indices came in below expectations, they have been rising for the past several months.  The pace of these gains might not be as fast as many hoped, but it does show slow but steady improvement in manufacturing, which has been a major problem area during this recession.

These indicators had only a small effect on stocks, which continued to climb step by step rather than by leaps and bounds.  The Dow is holding above 13,000, and the S&P 500 hit 1,400 for the first time since June 2008.  The yield on the 10-year note was unchanged until the last half-hour of trading when it edged up to 2.28% from 2.27%.

Friday capped what was the worst week for bonds since July.  Three bond-friendly reports slowed selling in bonds, but nothing could stop the juggernaut created when the Fed offered its upbeat assessment of the economy on Tuesday.

The consumer price index, which monitors inflation in retail prices, showed a 0.4% gain in February versus 0.2% the previous month.  Gas prices, however, accounted for a whopping 80% of the increase.  The core rate, which eliminates gas and food prices, was 0.0%.  Economists believe that, in the bigger picture, inflation is under control.

Industrial production in February was unchanged, after posting a 0.4% gain in January.  Separately, the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for March surprised everyone by edging down to 74.3 from 75.3.  It was the first decline since August.

When the market closed Friday, the yield on the 10-year note was unchanged at 2.28 %.  During the session, however, it recovered after opening at 2.34%.

After last week’s avalanche of reports, this week seems pretty sparse.  The good news is that almost every report involves the latest stats on the housing market, although some are definitely more influential than others.

Monday the National Association of Home Builders index for February will be released.  It is likely to show another gain — up to 30 from 29.  This report reflects how confident builders are about the future, and it is on a roll.  As recently as September 2011, the index read 14.  This report, however, has minimal bearing on the markets.

Data on housing starts and building permits are due Tuesday and also have little impact.  Starts are estimated to rise to an annual rate of 702,000 units, up from 699,000 in January.  There are no estimates on how many permits may have been issued.  This report, however, is subject to big revisions.

On Wednesday the report on existing home sales in February could influence trading.  Analysts expect the annual average of sales to rise to 4.60 million units, which would be a slight increase over the January total of 4.57 million.

Thursday is first-time unemployment claims day, as the number of claims filed for the week ended March 17 are due.  They hit a four-year low last week, and so far there is no reason to believe they will reverse course.

The Conference Board also releases its index of leading economic indicators for February.  It is expected to rise to 0.5% from 0.4% in March.  This indicator looks at 10 components and determines how the economy will fare over the next six to nine months.  Unfortunately, this report does not generate much activity in the markets.  Nor does the FHFA home price index for January, which is also on tap for Thursday.  December’s price index rose 0.7%, which was good news.  No predictions are available for January.

The final release of the week, new home sales for February, is expected to show a sizable increase.  Analysts believe annual sales will increase to 330,000 from 321,000 in January.  That would be in keeping with increased housing starts and the rising homebuilders’ index.  This report, however, does not impact trading like existing home sales.  The numbers just aren’t there.

Just because most of the indicators scheduled for this week are lackluster in their ability to move the markets, it doesn’t necessarily mean there won’t be any news.  There are still serious economic problems in Europe, and any situation that sours demand for stocks could boost buying in bonds.  Many economists, however, believe that in this new economic landscape, the 10-year yield will find a home somewhere between 2.10% and 2.50%.

Last week began with news that China, which boasts the world’s second largest economy, lowered its target for annual economic growth last Monday, sending stocks down in many countries around the globe, including the U.S.  Investors did not move to Treasuries; the 10-year note yield, which moves inversely to price, edged up by 1 basis point.

The economic reports were mixed and had little bearing on the market.  The February ISM index on the service sector rose more than expected, hitting 57.3% — up from 56.8% the previous month.  This caused only light selling of Treasuries.  Factory orders in January fell 1.0%, which was less than the predicted 1.5% decline.  But orders were down substantially from December’s 1.4% increase.

Later in the session Treasuries were hurt by talk of large amounts of corporate debt being sold that pay higher interest rates than the close-to-rock-bottom yields Treasuries offer.  At close the 10-year yield had risen to 2.00%.

Treasuries recovered Tuesday as global concerns about China’s flagging economy and Greece’s funding problems sent stocks plummeting.  Also on the list of worries is the declining state of economic growth in the European Union and the eurozone countries.  The 10-year Treasury closed at 1.94%.

Wednesday was another up-and-down day.  Stocks fell early, allowing Treasuries to maintain Tuesday’s yields.  But then ADP, the payroll giant, said that 216,000 jobs were added to private sector payrolls in February, sending stock prices and bond yields up.  Later the Wall Street Journal released an article stating that the Fed is considering a new bond program to ward off inflation.  Bonds liked the anti-inflation move, and yields slid.

The only economic report showed 4^thquarter manufacturing production and costs on the rise.  Production costs jumped 0.9%, while unit labor costs rose 2.8%.  These are unsettling numbers when compared to final 3^rdquarter data: production up 2.3% and labor costs -2.5%.  When labor costs rise faster than production costs, that’s a sign of inflation.  The 10-year closed at 1.96%.

A positive outlook for Greece overshadowed a disappointing report on first-time jobless claims for the week ended March 3.  Applications for benefits jumped by 8,000 to a higher-than-expected 362,000.  With investors finding no reason to buy Treasuries as stock prices climbed, the 10-year yield rose four basis points to close at 2.01%.

The February employment report took center stage Friday morning, as 213,000 jobs were added to nonfarm payrolls.  Although this was 30,000 fewer than in January, stocks posted decent gains, and Treasuries sold.  It was also noted that about 20% of the jobs added were temporary, but employers anticipate many will turn into full-time positions as the economy improves.  The unemployment rate held at 8.3%.

The U.S. trade deficit caught the attention of the markets.  The trade gap in January, which came in at -$52.6 billion, was $2 billion higher than in December.  It was the largest deficit since October 2008.  These numbers could negatively impact 1^stquarter GDP.  Wholesale inventories in January rose 0.4%, which was down substantially from the 1.1% increase the previous month.

The Mortgage Bankers Association released another mixed report on mortgage applications for the week ended March 3.  Applications to purchase rose 2.1% while refis dipped 2.0%.

This week could be a little tough on Treasuries, as analysts expect upbeat reports on several economic indicators.  But then, analysts have been known to be wrong.  There are no reports due Monday, but retail sales for February are out early Tuesday, and they usually influence the markets.  Sales are forecast to rise 1.1%, which would dwarf the 0.4% January increase.  Excluding autos, sales should rise 0.7% — the same as the previous month.  If on target, retail sales should boost Wall Street and encourage selling in Treasuries.

January business inventories are forecast to increase by 0.5%, just slightly higher than December’s 0.4% rise.  This report is generally ignored by the markets.

Wednesday is almost a non-day as far as reports go.  Import and export prices indices for February are due but generally don’t affect the markets.  Import prices, however, are expected to rise 0.5% from the previous 0.3% increase.  There are no export price forecasts.

Four reports are due Thursday, and any one (or all of them) could influence trading.  First-time jobless claims for the week ended March 10 are due.  Claims have been holding in the 350,000 range for the past several weeks, so any numbers substantially above or below that would likely affect Treasuries.

February’s producer price index, which looks for inflation at the wholesale level, follows.  It is expected to rise 0.5%, which is much higher than the 0.3% increase the previous month.  The core rate, which is the one the Fed looks at, is expected to decline 0.2% from 0.4%; that should calm worriers.

Two manufacturing indices from February are also on tap, and both are expected to rise, which could put selling pressure on Treasuries.  The Philly Fed index looks at manufacturing conditions in the mid-Atlantic area, and it is expected to climb to 14.5 from 10.2 — a considerable move.  The NY Empire State index should hit 22.0, up from 19.5.  Manufacturing has not snapped back as hoped; for the past few months, however, these indices have been moving up slowly, but steadily.

Friday there are three more reports before the markets close for the week.  First out and always important is the consumer price index, which keeps tabs on inflation at the retail level.  Analysts believe that it will have risen 0.5% in February, which is quite an increase from the previous 0.2% reading.  The core rate, which eliminates volatile food and energy prices, should show a 0.2% increase, which would be good news when compared to January’s 0.4% increase.  A rise in the CPI, however, could worry bond investors because inflation erodes the value of longer-term fixed-rate assts.

Industrial production in February is expected to move up 0.3%, which is a good number compared to the 0.0% reading in January.  But it also means that manufacturing may be recovering, which could lessen the need for safe-haven buying.  Capacity utilization should hold at 78.7.  The preliminary Thomson Reuters/University of Michigan consumer sentiment survey for March is predicted to increase to 76.0 from the February final of 75.3.  Although not a big jump, it is yet another indication that perhaps things are moving in a more positive direction.  That could send 10-year yields up.

These concerns opened the door for investors who want to avoid uncertainty, so they bought bonds.  The 10-year note yield, which moves in the opposite direction of price, fell six basis points to close at 1.92%.

Pending home sales in January rose 2%, which was its best gain since April 2010.  Pending sales are also up 8% from one year ago.  Although this report generally does not affect the markets, it is yet another indication that recovery in the housing market continues to inch ahead.

Tuesday the Conference Board released a way-better-than-expected consumer confidence survey.  The index soared to 70.8 in February from the previous 61.5 reading.  Analysts expected 63.5.  Normally, those numbers would push stock prices up and cause heavy selling in bonds, but not this time.

The seemingly good news was countered by a 4.0% drop in durable goods orders in January — the biggest one-month decline in three years.  Orders rose 3.2% in December, and were expected to drop by only 1.3% this time around.  Some chalked up the poor numbers to the expiration of the tax credit.  Excluding transportation, orders fell 3.2%.

The S&P Case-Shiller housing price index, which surveys home prices in the 20 largest U.S. cities, fell 4.0% in the 4^thquarter to levels not seen since mid-2002.  This was the fifth annual loss in prices and the biggest single loss since mid-2008.

Stocks were heartened by a small dip in gasoline prices before the markets closed, which sent the Dow and S&P to their highest levels since 2008.  This put slight downward pressure on the 10-year note.  The yield edged up to 1.93%.

Wednesday was busier than expected.  Fed Chairman Ben Bernanke testified before Congress and hinted that there would not be a third round of quantitative easing, i.e., QE3.  Disappointed investors sold, pushing the 10-year yield up by six basis points.  He also said higher gas prices could reduce consumer spending and fire up inflation, which erodes the value of fixed-rate investments.  The Chairman added that he anticipates slow growth in housing and doesn’t think unemployment will drop much lower this year.  There was good news on inflation, which is expected to hold between 1.4% and 1.8%.  This is below the Fed’s 2% maximum.

An upward revision on 4^thquarter GDP also affected bonds.  It came in at a higher-than-expected 3.0%, up from 2.8%.  Commercial construction, consumer spending and fewer imports were largely responsible for the increase.  In addition, the Chicago PMI index of February manufacturing conditions beat projections, jumping to 64.0 from 60.2.

And finally, the Fed’s Beige Book, which looks at economic growth in the nation’s 12 federal districts, reported that home sales and banking conditions improved across the country, with New York being the single holdout.  Manufacturing and nonfinancial services showed moderate growth, while consumer spending was positive.  Prices held in check, and there was no sign of wage pressure.

After big gains on Tuesday, the three major stock indices took a substantial hit, with the Dow again falling below 13,000.  The 10-year closed at 1.99%.

A number of economic reports came in stronger than expected on Thursday, pushing the yield on the 10-year note up.  First-time jobless claims fell to 351,000 for the week ended Feb. 25.  Personal income and personal spending in January were also on the rise.  Income increased by 0.3% and spending rose 0.2%, which was an improvement over the 0.0% reading for December.

Strong car sales in February, which could result in the auto industry’s best month in four years, and a 4.7% increase in retailers’ same-store sales, also rallied stocks.  Financials led the charge, and kept investors away from bonds.

Two reports disappointed, but not enough to encourage buying in bonds.  Construction spending in January dipped 1.0% and the ISM index on February manufacturing conditions fell to 52.4, when analysts expected 54.7.  Any number above 50 indicates sector expansion, but this number has been edging down for the past four months.

When the closing bell rang, stocks had maintained some of their gains and so did Treasury yields, with the 10-year note rising to 2.04%, its first close above 2.0% since Feb. 21.

There was no economic news released Friday, so it appeared that Wall Street indulged in a little profit taking.  And it looks like some of that money headed for Treasuries, as prices rose and yields fell.

Some news from Europe was promising.  Twenty-five of the 27 countries in the European Union signed a fiscal compact requiring stricter monetary discipline, which will hopefully avoid future economic crises.  The Czech Republic and United Kingdom held out.  The jury is still out on Greece receiving money for its second bailout because loans from private creditors are not yet a done deal.  March 9 is the deadline.  A couple of weak economic reports from Spain and Germany also encouraged safe-haven buying in U.S. Treasuries.

When the markets closed, the yield on the 10-year note had fallen below 2.0%, to 1.97%.

Mortgage applications were mixed during the week ended Feb. 24.  Purchase apps rose 0.9%, while refis fell 2.2%.

This week features a number of indicators, but none as important as Friday’s February employment report.

Monday begins with the ISM index on the service sector in February.  It is expected to fall to 55.0 from 56.8, which is a fairly sharp drop.  This indicator does not move the markets like the manufacturing index sometimes does, even though it employs a huge percentage of the labor force.

No reports are on tap for Tuesday, but on Wednesday ADP, the huge payroll company, releases the number of people added to private sector payrolls in February.  This information can often move the markets.  If the ADP number is high or low, the markets generally move on the news.  No estimates are available.

The other report scheduled is 4^thquarter productivity and costs.  It is unlikely to rattle the markets because analysts expect little change.  Productivity could edge down to 0.6% from the previous 0.7% reading.  Labor costs, however, are expected to rise 1.2%, the same as in the 3^rdquarter.

Thursday opens with the first-time unemployment report for the week ended March 3.  Claims have been holding anywhere from 350,000 to 360,000.  Should they rise or fall significantly, Treasuries would likely move accordingly.  The other report on tap comes from Challenger, Gray and Christmas, an outsource firm.  In January it reported that employers said job cuts could rise as high as 38.9%.  No advance numbers are out for February.

Friday’s employment report could disappoint.  After months of big additions to nonfarm payrolls, economists expect only 208,000 people will have been added to the working force.  Even though the number is the lowest since November 2011, the number of unemployed should remain below the key 400,000 mark.  Generally, if the report comes in as expected the markets’ responses will be minimal.  It’s when the data are far above or below the predicted outcome that Treasury yields move.

The final two reports are on the U.S. trade deficit and wholesale inventories — both from January.  The trade deficit is expected to edge up to $49 billion, which is just a hair more than the previous $48.8 billion.  There are no estimates on inventories, which rose 1.0% in December.  Neither of these indicators are market movers.  Their chances of being ignored are even higher when they are followed by the employment report.

The bailout package as approved last Monday was presented to the Institute of International Finance, representing private investors.  The IFF director said his target is 95% approval, but he fears a number of investors will not sign off on the deal.  Should this happen, it would be back to the drawing board for the bailout package, and Greece would stand on the brink of a disorderly default.

Stocks jumped early Tuesday morning on encouraging news regarding the bailout, with the Dow Jones passing the 13,000 mark for the first time in four years.  The 10-year Treasury note yield, which moves inversely to price, rose to its highest level in two months.  But with no economic reports released to provide a motive for buying stocks, the Dow slid prior to the closing bell, short of 13,000.  The yield on the 10-year edged down to 2.04%.

Existing home sales in January improved on several levels.  Wednesday’s report saw sales climb to an annual rate of 4.57 million units from a revised 4.38 million units in December, with the catalysts being rock-bottom mortgage rates and low home prices.  The median home price fell 2% to $154,700, the lowest price in more than 10 years, due to the fact that 35% of all home sales were distressed properties.  However, inventories fell to a six-month supply of 2.3 million homes — down 20% from one year ago.

In spite of that report, stocks remained in negative territory as continuing concerns about Greece were the main influence on Wall Street.  Others sat on the sidelines, content with the big run-up in stock prices over the first seven weeks of the year.  Some investors headed to U.S. Treasuries, pushing the yield down to 2.00%, its lowest close in six days.

Thursday’s report on first-time jobless claims for the week ended Feb. 18 remained at 351,000.  Any number below the 400,000 mark indicates growth in the job market.  So far this year, claims have come in below 400,000 in all but two weeks.  The four-week average hit its lowest level since March 2008.  Stocks edged up on the news, while Treasuries lost some support.  Treasuries are also being challenged by a flood of corporate bonds that pay higher interest rates than government bonds.  Separately, the Federal Housing Financial Agency reported that home prices rose 0.7% in December versus a 1.9% increase the previous month.

Greece didn’t hog the morning headlines, so the markets continued to watch and wait.  In the afternoon an auction of 7-year Treasury notes showed strong demand, which gave a lift to other government offerings.  The 10-year note closed at 1.98%.

Two economic reports were released Friday morning, but neither had the power to impact the markets.  New home sales in January beat forecasts, rising to an annual rate of 321,000 units.  December sales were also revised upward by 6%.  In addition, inventories fell for the 11^thstraight month to a record low of 151,000 units.  The median price edged upward to $217.000.

The final February consumer sentiment survey from Thomson Reuters/University of Michigan also exceeded expectations, rising to 75.3 when 73 was expected.  Normally this survey affects both stocks and bonds, but neither showed much interest.

At close on Friday, the yield on the 10-year note again closed at 1.98%.

Mortgage applications moved in opposite directions again during the week ended Feb. 17.  The Mortgage Bankers Association reported that applications to purchase fell 2.9% from the previous week, while refis surged 4.8%.

Ten economic reports are due this week, with nine of them falling between Tuesday and Thursday.  A few market movers are included in the mix.  On Monday the pending home sales report for January is due.  There are no estimates available, but they fell 3.5% in December.  With the sales surge in January, that number could increase.

The big report Tuesday will be consumer confidence for February.  It is expected to rise by more than two points (63.3 from 61.1).  Should that happen, it would likely discourage investors from buying Treasuries.

Durable goods orders in January are expected to decline by 0.8% after rising 3.0% the previous month.  That would be a substantial decline and could spark buying in Treasuries.  What we don’t know is if the estimates were made before or after Boeing scored it largest order ever.

The final report is the Case-Shiller index on December home prices in the nation’s 20 largest cities.  Prices fell 1.3% in November, but this survey usually doesn’t weigh on trading.

On Wednesday the 1^strevision on 4^thquarter GDP will be released.  It initially rose to 2.8%.  Economists are calling for a decline to 2.7%, which shouldn’t be enough to stir the markets.  If it changes two percentage points or more either way there would likely be movement in the markets.  The Chicago PMI index on manufacturing conditions in February could be a yawner.  It is predicted to fall to 60.0 from 60.2, which would not likely stir up trading.

There’s a full slate on Thursday, beginning with first-time jobless claims for the week ended Feb. 25.  There has been no change over the past two weeks, so a moderate move in either direction could impact Treasuries.

That will be followed by personal income/personal spending in January.  Income should rise 0.3% versus a 0.5% gain in December, while spending should increase by 0.5% — much better than 0.0% the previous month.  This report could slow investing in Treasuries, as it would be a sign of potential economic growth.  The core rate, which looks at inflation, is forecast to rise 0.2%, the same as in December.

The ISM index on nationwide manufacturing conditions in February is expected to rise to 54.5 from 54.1, which could also slow buying in Treasuries.  Expectations do not favor bonds, but the economic news regarding jobless claims will likely steer the direction of the markets.

The final report of the day and the week is construction spending in January.  It should increase 0.4%, but that would be down substantially from December’s 1.5% gain.  Either way, this report generally does not impact trading.

There are two more hurdles to clear before it’s a done deal.  The country needs to define spending cuts for another 325 million euros and assure that these cuts will be implemented, no matter how the election turns out later this year.

While stock markets around the globe rose on the news, not everyone was happy.  The passage of the austerity measures and budget cutbacks resulted in riots throughout Athens.  Citizens were distressed over job and salary cuts for government employees, as well as pension reform and other belt-tightening measures.

Stocks held gains throughout the session, but Treasuries did not fare as well.  The yield on the 10-year note, which moves in the opposite direction of price, edged up to 1.99%.

Disappointing January retail sales sent investors to Treasuries on Tuesday.  Sales rose only 0.4% when a gain of about 1% was expected.  A 1.1% decline in auto sales hurt the bottom line.  When they were excluded, sales rose 0.7%.  Sales for November and December were also downwardly revised.  Retail sales are key to economic growth, so this news worried investors.

The other two releases, import and export price indices for January and business inventories for December, had no impact on trading.

Problems in Europe also weighed on stocks.  Moody’s, one of the three top ratings agencies, downgraded the credit ratings of six eurozone countries.  Ratings on Austria, France and the U.K. might also get the ax.

Greece sent up red flags when it cancelled Wednesday’s meeting to firm up Monday’s commitments regarding the bailout.  Fears escalated that the deal could fall through.  Later, however, Greece’s conservative New Democratic Party said that a letter upholding its promise of no changes after the election would be delivered Wednesday.  Uncertainty sent the 10-year yield down to 1.92% at close.

The document, however, wasn’t sent Wednesday.  Now Greece says it will arrive on Sunday.  Credibility continues to dwindle and, along with the other reports, put pressure on Wall Street.

Stocks rose early on Wednesday due to better-than-expected economic data from Europe, and China’s support of the eurozone.  There was also good news on the domestic front.  The NY Empire State index of manufacturing conditions in February jumped to 19.5 from 13.5, when analysts were expecting 14.5.  Industrial production and capacity utilization barely moved in January.  There was no change in production, and utilization edged down to 78.5% from 78.6%.

The National Association of Homebuilders February housing market index, which is basically a confidence poll, jumped to 29, its fifth straight increase and its highest level in four years.

The minutes of the Jan. 24-25 FOMC meeting pushed stocks lower and put light downward pressure on Treasuries.  The minutes revealed that only a few members of the Committee were in favor of additional quantitative easing.  The post-meeting statement seemed to indicate there were more.  In addition, the Fed said that it sees only modest economic growth in the near future and a gradual decline in unemployment.  The 10-year note closed up one basis point at 1.93%.

More good economic news poured in Thursday morning, erasing any need for investors to buy Treasuries.  First-time jobless claims for the week ended Feb. 11 fell again.  They dropped by 13,000 to a four-year low of 348,000.  Continued claims, those collecting benefits for more than one week, fell by 100,000 to 3.4 million.

That report was followed by the producer price index (PPI) and housing starts/building permits, which reflected activity in January.  Housing starts rose 1.5%, jumping to an annual rate of 699,000 units from 689,000 in December.  The previous total was upwardly revised from 658,000 units.  Permits were up 0.7% to an annual rate of 671,000.

The PPI, which checks for inflation at the wholesale level, rose by a very acceptable 0.1% in January.  The core rate, which eliminates food and energy prices, jumped 0.4%.

Finally, the Philly Fed index of February’s manufacturing conditions in the Mid-Atlantic area, rose to 10.2 from January’s 7.3 reading.  This was a four-month high and a whole lot better than in August 2011, when it tumbled to -30.7.

When the markets closed Thursday, the yield on the 10-year note had risen to 1.99%.

Friday brought two additional reports, neither of which were market movers.  The consumer price index, which checks on retail inflation, rose 0.2% after holding at 0.0% the previous two months.  The core rate, which eliminates food and energy costs, also climbed 0.2%.  Although this is the fastest these numbers have risen over the last four months, no one seems to be crazed about inflation.

The final report, leading economic indicators, rose 0.4% in January when 0.5% was expected.  The markets more-or-less ignored it, but some European countries were bothered by a slower-than-expected recovery.  This report looks at economic conditions for the next six to nine months.

Stocks flourished in Europe Friday morning, especially in Greece, as the prospect of a conclusion to the recent unrest over the bailout money brightened.  Euro-area finance ministers are expected approve a second round of financing for Greece on Monday.  We’ll see.

The Dow closed up and so did the 10-year Treasury note.  It ticked up four basis points to 2.03% — its highest closing since February 9.

The Mortgage Bankers Association reported that applications to refinance edged up, while purchase apps declined.  During the week ended Feb 10, applications to purchase fell 8.4%, while refis rose 0.8%.  Refinances account for 81.1% of total mortgage applications — the highest since Jan. 20.

For the past few weeks economic news has been playing “feast or famine.”  Last week was a major feast for news, with 11 reports to digest.  This week, not so much.  It will be a short one due to the Presidents Day closing on Monday, and no reports are scheduled for Tuesday.  There should be news on the Greek bailout situation.  If it is positive, Treasuries would likely sell, sending yields up sharply.  Or, the opposite could be true.

Existing home sales for January are slated for Wednesday, and a slight drop is expected.  Analysts predict that an annual rate of 4.60 million homes will have been sold.  That’s down from 4.61 million in December.  Although this report can affect trading, a small change like that would probably go unnoticed.  Reports on home sales are often subject to big revisions.

First-time unemployment claims for the week ended Feb. 8 are out Thursday.  They have been falling for the past several weeks, and another decline would more than likely deter investors from buying bonds, if all else remains steady.

Later the Federal Housing Finance Agency will report on home prices for December.  No estimates are available, but according to the agency prices rose 1.0% in November.  Because the news is dated, the data are more interesting than influential.

Two reports close out the week on Friday.  January new homes sales are expected to rise to an annual rate of 325,000 units, which would be a substantial increase compared to December’s annual rate of 307,000 units sold.  This report, however, is not a major market mover.

The Thomson Reuters/University of Michigan final survey on consumer sentiment in February is another story.  It is expected to fall to 72.5 from the preliminary reading of 75.  A decline like that could encourage buying in Treasuries.  If the drop were steeper, demand for Treasuries could be strong.  Due to the recent positive economic news and gains on Wall Street, a higher reading is possible.

U.S. Treasury securities, however, benefited big time as investors sought a safe haven for their cash. The benchmark 10-year note yield, which moves in the opposite direction of price, fell to 1.83% early in the session but closed at 1.84%. Stocks recovered most of their early losses as Wall Street became hopeful that the European Union leaders gathering for a summit will provide encouraging news.
The report on personal income and spending for December had little impact, even though income rose sharply. It jumped a better-than-expected 0.5% from 0.1% the previous month, while consumer spending was unchanged from November’s 0.1% increase. The PCE (personal consumption expenditures), a major inflation gauge, rose by an expected 0.1%.

On Tuesday the Dow dropped by more than 100 points at opening due to weak economic reports and news that Greece again did not yet come to an agreement with possible creditors regarding its debt. The news kept buying steady in the Treasury markets.
The first report showed that home prices are still falling, according to the S&P/Case-Shiller index on November house prices. Prices declined in 19 of the largest 20 U.S. cities surveyed (Phoenix dodged the bullet) by 3.7% versus a 3.4% drop in October. That was followed by two additional declines. The Chicago PMI index on manufacturing conditions in January dropped to 60.2 from 62.2, while consumer confidence plunged to 61.0 from 64.8 — a major disappointment.

The final report of the day was the 4thquarter employment cost index (ECI), which edged up to 0.4% from 0.3% in the 3rdquarter. The title is almost self-explanatory, as it charts total compensation by industry, ownership and occupation. It is watched for trends.

When the markets closed the Dow showed a 20-point loss, while the yield on the 10-year note dropped four basis points to finish at 1.80%.
February began on a positive note, as financial and tech stocks rose due to Facebook’s pending IPO. Wall Street is hoping when this happens it will push the markets in a positive direction.

Stocks rose early due to upbeat manufacturing data from countries around the globe. U.S. data, however, were a disappointment. The ISM index on January manufacturing conditions rose to 54.1 from 53.1, but analysts predicted an increase to 55.0, which made the actual gain less than acceptable.

ADP, the payroll company, said it added 170,000 jobs to private payrolls in January, which was far below the 212,000 added in December. This was also regarded as a negative regarding Friday’s January employment report.

Construction spending in December offered good news. It rose 1.5% from November’s drastically downwardly revised 0.4% increase. Originally, it showed as a 1.2% increase.
Stocks held gains throughout the session, discouraging buying in U.S. Treasuries. At close, the yield on the 10-year note hit 1.85%, up from the previous 1.80% reading.

Mixed news released Thursday morning provided little incentive for the markets to move. True, first-time jobless claims for the week ended Jan.28 fell to 367,000, down 12,000 from the previous week. That was far fewer than the 375,000 claims analysts expected.
Countering that news, however, was Fed Chief Ben Bernanke’s testimony before Congress. As he previously admitted, economic recovery has made some upward progress, but added that the pace of recovery is “agonizingly slow.” This, he believes, leaves economic recovery in the U.S. “vulnerable to shocks,” including those coming from overseas. Bernanke also indicated, as he has before, that the Fed will take further steps to aid economic recovery as needed. Most analysts believe that could include QE3.

That testimony stirred buying in Treasuries, sending yields down. They got a further push downward when Challenger, Gray and Christmas, an international outsource firm, announced that planned job cuts in December totaled 53,000 — the most since September.
Preliminary reports on 4thquarter productivity rose 0.7%, down from the 4thquarter final of 1.9%. Unit labor costs, however, jumped 1.2% from the previous -2.1% reading. The markets appeared to ignore the information.

Friday morning Treasuries took a severe beating after the far-better-than-expected January employment report was released. A whopping 243,000 jobs were added to nonfarm payrolls, dropping the unemployment rate to 8.3% — its fifth straight decline. These jobs were spread across many categories, from manufacturing to retail to factories.

Household surveys conducted by the U.S. Census Bureau suggest that hiring was probably stronger than the employment report showed.
Nonfarm payrolls were forecast to have added 155,000 to 200,000 jobs and the unemployment rate was expected to hold at 8.5%. The Dow Jones soared by more than 150 points, closing at a four-year high. The yield on the 10-year note also rose sharply, surging 12 basis points to 1.95%.

Two additional reports were released, but it is difficult to measure their impact due to the spike in employment. The ISM index on the service sector jumped to 56.8 from an upwardly revised 53.0, which is a significant increase. Separately, factory orders in December rose 1.1%. The previous month rose by an upwardly revised 2.2%.
Mortgage applications fell during the week ended January 27. The Mortgage Bankers Association said purchase apps were down 1.7%, while refis fell 3.6%.

This week is “economic indicators light.” There is nothing on the docket until Thursday, when first-time jobless claims for the week ended Feb.4 are released. Last week they fell considerably, but it isn’t clear yet whether it was volatility rearing its head or the way it will be as we move through 2012.

Wholesale inventories for December are also on tap. Briefing.com, which follows the markets closely and makes forecasts, rates this indicator as D- in importance. It doesn’t reflect anything regarding the consumer, so it is largely ignored. Those inventories rose 0.1% in November, but no current forecasts are available.

Friday closes with the preliminary survey on consumer sentiment for February. Released by Thomson Reuters/University of Michigan, this can affect the markets because consumer sentiment is believed to have strong ties to consumer spending. If consumers feel confident, they spend money. If they feel things aren’t going well, they shut their wallets. In January the index closed at 75 — the fifth straight increase. No estimates are available for this release.

The U.S. trade balance for December is also due and it is expected to widen a bit. Economists predict the trade gap will hit $48.1 billion, up from the previous $47.8 billion. Unless there is an extenuating circumstance, however, the markets ignore this report.

Tuesday was another day of wait and see. There was no economic news to influence trading and no announcements from Europe to tilt the scales one way or the other. The markets didn’t move much, and many economists believe Treasury yields will remain low for the foreseeable future. The 10-year note closed at 2.06%.

The Federal Open Market Committee (FOMC) confirmed that outlook after its meeting on Wednesday. Chairman Ben Bernanke said that although the economy is improving it has a long way to go. To aid an economic rebound he said the fed funds rate will remain at the historic low of 0%-0.25% until late 2014 — approximately 15 months longer than was originally proposed.

The committee also noted that: the unemployment rate should end the year between 8.2% and 8.5% (it was at an unrevised 8.5% in December 2011); the GDP should come in between 2.2% and 2.7% for 2012; the inflation target for this year is 2.0% and the door is still open on providing additional stimulus via QE3, if necessary.
The thinking behind these moves is to provide consumers with lower interest rates on big ticket items such as automobiles, mortgage rates and student loans. This would also affect credit cards that base their rates on “rate + prime.” The prime rate, currently at 3.25%, follows the fed funds rate, either up or down.

Wall Street liked the news, and the Dow closed at its highest level since May. Bond traders liked it also, as the yield on the 10-year Treasury note dropped 13 basis points to 1.85% on early word that the fed funds rate would hold until the end of 2014. It closed at 2.01%.

Other releases, which were totally ignored, said the Federal Housing Finance Agency house price index for November rose 1.0%. December pending home sales, however, fell 3.5% after spiking by 7.3% in November.

Thursday was a different story. Most of the economic news was negative, sending stocks prices and the 10-year yield down.
First-time jobless claims for the week ended Jan. 21 halted their trend downward.

Claims rose by 21,000 to 377,000, just slightly above the forecast of 375,000. New home sales in December were another matter, however. They slid 2.2% to an annual rate of 307,000 when analysts were expecting something closer to 325,000 units. Year-over-year sales dove 6.2% to a record low annual rate of 302,000 units, while the median price fell 12.8% to $210,000.

Durable goods orders, expensive items expected to last three or more years, rose 3%. Excluding autos, orders were up 2%. And finally, the leading economic indicators rose 0.4% when a 7% hike was expected.
News from Europe was minimal, as Greek officials continue to talk to private sector creditors with the hope of reducing Greece’s debt. As long as they continue to talk, hope exists. But now Portugal has joined the list of endangered countries that will now have to be watched.

The economic news pushed the 10-year yield down to 1.93% at closing.

On Friday the much-anticipated report on 4thquarter GDP was met with disappointment. Although the economy grew at a 2.8% clip (up from a 3rdquarter reading of 1.8%), it was lower than analysts had predicted. Any results that come in below expectations are generally regarded as bad news.

One of the major concerns was high inventories. Although they add to GDP, consumption growth was weak. Consumers have to spend in order to move the economy forward. As a result, stocks took a tumble, but the yield on the 10-year note was unchanged.
The final report, the January consumer sentiment survey compiled by Thomson Reuters/University of Michigan, rose to 75 from 74. This was the fifth straight month of upward movement. This survey usually impacts the markets, but on Friday Treasuries held steady until the final few minutes before closing. The benchmark 10-year yield closed at 1.90%. It fell 17 basis points during the week.
Mortgage applications fell during the week ended Jan. 20, according to the Mortgage Bankers Association. Purchase apps were down 5.4%, while applications to refinance were off by 5.2%.
This week is loaded with reports, which could lead to volatility, or not. It usually depends on whether the results exceed expectations or miss, and by how much.

Only one report is due Monday, but it ramps up from there. Personal spending and income for December offer only one change. Spending is expected to increase 0.1%, the same as in November. The core rate, which is an important inflation indicator, is expected to do the same. Income, however, could increase by 0.4%, according to analysts. That’s a big jump from the previous 0.1% reading, but it shouldn’t be a big market mover.

The 4thquarter employment cost index is expected to increase to 0.5% from the 3rdquarter 0.3% move. This generally doesn’t impact the markets, but consumer confidence for January does. It is predicted to rise to 68.0 from December’s 64.5.
This is a big move that could impact Treasuries. Higher confidence is believed to encourage spending, which in turn grows the economy. The report could discourage investors from buying bonds.
Also due is the Chicago PMI index on January manufacturing conditions. It’s expected to drop to 61.0 from the previous 62.5, which could be favorable for bonds. The final report is the S&P Case-Shiller November housing price index for the 20 largest U.S. cities. There are no estimates available, but it’s a good bet prices will go down.

Wednesday morning the ISM index on nationwide manufacturing conditions in January is predicted to increase to 54.5 from 53.9. Although that’s not a big move, any increase in manufacturing is a good sign — especially when the other two indicators are not usually regarded as significant.

Construction spending in December should increase 0.2%, which is far below the previous 1.2% — but an increase nevertheless.
Finally, ADP, the payroll company, should release the number of jobs it added to nonfarm payrolls in January. This report is anticipated because many believe it is an indicator of jobs added on Friday’s January employment report. A high number generally causes selling in Treasuries, but no estimate has been released.

First-time jobless claims for the week ended Jan. 21 are expected to climb to 375,000 from the previous 2008 low of 352,000. If claims rise by 23,000, that would probably increase buying in Treasuries, as they have been declining for the past several weeks.
The day’s final report is 4thquarter productivity and costs.

Productivity is expected to drop to -0.2% versus a 3rdquarter gain of 2.3%. Costs, however, should rise to -0.1% from -2.5%. Rising costs and lower productivity sometimes hint of inflation, which might put downward pressure on Treasuries.

Friday is the big one. The January employment report is expected to show 105,000 jobs added to nonfarm payrolls. That’s only a hair more than half of the 200,000 jobs added in December. It is far below the 250,000 jobs per month that economists say need to be added in order to lower the unemployment rate to a workable level.

The two reports released after that will get little attention. The ISM index on the service sector in January should increase to 53.5 from 52.6. No estimates are available for December factory orders, but they did rise 1.8% in November.

As has been true for months, Europe’s debt problems continue to be the primary movers of U.S. stocks and bonds.  It was reported that the German chancellor and the French president said they are continuing work on a proposed pact that will require stronger budgetary restraints on eurozone countries.  It could be signed this month and go into effect in March — emphasis on “could.”

The benchmark 10-year Treasury note yield, which moves in the opposite direction of price, was unchanged at 1.96%.

Stocks rose early Tuesday due to good corporate quarterly reports, more encouraging comments from Europe regarding the debt crisis and strength in the financial sector.

The only economic news showed wholesale inventories in November rose by a less-than-expected 0.1%.  Even though it was a huge decline from October’s 1.2% increase, this indicator has little bearing on the markets.  The 10-year note yield edged up to 1.97% at close.

Stock prices waffled Wednesday morning due to (what else?) concerns about Europe’s debt problems.  This left investors with only one place to stash their money — U.S. Treasuries.  The yield on the 10-year note fell to 1.93%.

The Fed’s beige book, which looks at economic conditions in the nation’s 12 federal districts, was released in the afternoon.  It showed the economy expanded moderately in all districts, led by strong December retail sales.  Real estate, however, was down across the board.

The yield on the 10-year note fell again in the wake of a strong auction of the benchmark Treasury.  This was the first time ever that the government sold a 10-year note with a yield below 2.0%.  The yield fell to 1.90% by the time the market closed.

Successful bond auctions in Europe, held early Thursday morning, indicated that the eurozone economy might be taking baby steps toward recovery.  Pre-market data suggested a surge in stock prices.  But poor U.S. retail sales in December and an increase of 24,000 first-time jobless claims for the week ended Jan. 7 pulled stocks into negative territory.  The yield on the 10-year note edged up.

Retail sales in December rose a mere 0.1% from a revised 0.4% increase in November.  Online sales fell 0.4%.  Retail sales excluding autos fell 0.2%.  This turned out to be not the happiest of holidays for merchants.  Sales, however, were up 4.1% from one year ago.

First-time claims almost hit the key 400,000 mark again, rising to 399,000.  The Labor Department admits that there is a great deal of volatility due to seasonal hiring but said the post-holiday surge in claims should smooth out by month’s end.  Separately, business inventories in November rose by a weaker-than-expected 0.3% versus a 0.8% increase the previous month.  The inventory-to-sales ratio held at 1-to-27.

Before the markets closed, strong demand for bonds and bills from Spain and Italy bolstered confidence not only in the new leadership of those countries but in the belief that they will not default.  However, we are only two weeks into the New Year and there are many auctions to come.  The more positive look at the European situation slowed buying in U.S. Treasuries and pushed the 10-year yield up to 1.93% at close.

The European situation didn’t look so rosy Friday morning.  ”Good sources” said that Standard & Poor’s could lower the credit ratings of several European countries, excluding Germany.  Topping the list of possibilities are France (almost a sure thing) and Austria.  Investors sold stocks and piled into Treasuries.

An unexpected increase in consumer sentiment for the first half of January, as reported by Thomson Reuters/University of Michigan, didn’t slow the buying of Treasuries.  The index rose to 74.0 from 69.9 due to an improved labor market, lower gas prices and stock market gains.  This indicator is used to get a handle on consumer spending.

The other two reports, the U.S. trade balance for November and the import/export price indices for December, had no impact on trading.  The 10-year again closed at 1.85%.

Mortgage applications climbed during the week ended January 6, according to the Mortgage Bankers Association.  Purchase applications were up 8.1% and refis rose 3.3%.

This week is the third four-day week we’ve had in the last four weeks, due to Martin Luther King Jr. Day.  Although the week is short, several reports could impact the markets.

Tuesday features the NY Empire State index of manufacturing conditions in January.  No economists or analysts have offered predictions on this index, which rose to 9.5 in December.  It has been climbing lately, as the October reading was 0.61.  A big increase could provoke selling in Treasuries.

Wednesday and Thursday feature some heavy hitters.  Wednesday’s first report is the producer price index (PPI) for December, which looks for inflation in wholesale prices.  A 0.3% increase is expected, the same as the previous month.  The PPI core rate, which eliminates volatile prices on energy and food, is expected to duplicate November’s 0.1% increase.

Industrial production could rise 0.5% in December versus a -0.2% reading the previous month.  A leap like that could encourage selling in Treasuries, as manufacturing has been struggling to recover.  Capacity utilization should creep up to 78.1 from 77.8.  Separately, the homebuilder index, which reflects how confident builders are regarding January sales, is due.  After remaining steady for several months, it has been climbing one step at a time over the past four months.  In December the index hit 21.

Thursday features a host of market movers, with first-time jobless claims for the week ended January 14 up first.  If most of the post-holiday layoffs are behind us, claims should more accurately reflect what’s going on regarding job.

This will be followed by the consumer price index (CPI), which checks on inflation at the retail level.  It is expected to have risen 0.1% in December after showing no gain in November.  The core rate could increase 0.2%, the same as in the previous month.  Bond traders should be pleased with these numbers — if they are correct.  Inflation robs fixed-rate assets of their value over time.

Housing starts in December are expected to hold at an annual rate of 685,000.  This would be a victory of sorts, as starts rose by 57,000 units in November.  There is no estimate on building permits, but they, too, increased to an annual rate of 681,000 the previous month.

The Philly Fed index on January manufacturing conditions in the mid-Atlantic region is Thursday’s final report.  Although there are no estimates, this index has slowly climbed out of a deep hole.  In August 2011, the index read -30.7.  Last month it hit 10.3.  This is one of the key manufacturing indices, so if it keeps climbing it could slow buying in Treasuries.

The final report of the week is existing home sales in December.  Economists believe they will increase to an annual rate of 4.7 million units, from 4.42 million in November.  That’s an increase of 28 million units, which would likely spark selling in Treasuries and push the 10-year yield higher.