ISM Whopper Sends Yields Lower!

Today's ISM Survey sent bond yields back into a recession tailspin. Here's the report:

The Institute for Supply Management reported that its index of service sector business activity declined to 44.6 in January from a revised reading of 54.4 in December. Economists surveyed by Thomson Financial/IFR had expected a slight slowdown but had still expected growth, with a median estimate for the index of 53.

It was the first time the service sector reading has contracted since March 2003. A reading above 50 indicates expansion, while below 50 indicates contraction. Price increases have slowed while costs are up, said Nieves, who is also senior vice president for supply management at Hilton Hotels Corp. Survey respondents cited recession fears taking hold and high energy prices dragging down profitability. ISM said only three service industries reported growth, while 14 showed contraction.

The 10 Year is approaching 40-year lows again. Mortgage rates are tied to the 10 Year, as well as Libor rate, and this will surely grease the wheels of the refinance engine again. Folks forget that Fed rate cuts have a lag effect, and kick into gear about 6-9 months after the fact. The first cut was back in August, so we are only on the bleeding edge of the impact kicking in. What is worth noting is the violent move off the lows all financial related shares have made over the past two weeks. The jury is still in deliberation - trying to determine if the worst is over and if financial related firms might be the next bull market leaders. We'll be watching closely.