Yay, A Committee

The trading community was geared up for a run and the last day of the month provided it. Initiated by weak revisions to earlier GDP reports, the note market rallied aggressively in the afternoon. Four days of nesting unchanged value in the complex provided plenty of fuel. On the month, the 10 year advanced 3-22 points. Unemployment day and the last day accounted for 3-09 of the rise.

The markets are reacting positively to a last minute "deal." Moving the direction of the deficit trend would be enough provided a growth agenda was connected. The capital markets fear the lack of growth much more than the debt/deficit, in our opinion. The smaller cuts announced in the plan are the "tell" that slow growth scared both sides. The forming of a committee to do the actual dirty work (later on) does not provide confidence behind the headlines.

The European situation should now return to focus. The EFSF, under present conditions, cannot support the weight upon it. We never believed even a missed coupon was possible here while major rescheduling was taking place in the EU. Now the nasty task of loss recognition and "shared burden" must ripple through the Continent. Austerity as economic policy is an IMF mantra that always had the US juggernaut as an offset; no longer.

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