by Calculated Risk on 6/05/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate continued to rise, increasing from 8.9 to 9.4 percent.

Steep job losses continued in manufacturing, while declines moderated in construction and several service-providing industries.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 345,000 in May. The economy has lost almost 3.6 million jobs over the last 6 months, and over 6 million jobs during the 17 consecutive months of job losses.

The unemployment rate rose to 9.4 percent; the highest level since 1983.

Year over year employment is strongly negative (there were 5.4 million fewer Americans employed in May 2009 than in May 2008).

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last 8 months (4.6 million jobs lost, red line cliff diving on the graph), and the current recession is now one of the worst recessions since WWII in percentage terms - although not in terms of the unemployment rate.

This is another weak employment report ... more soon.

by Calculated Risk on 6/04/2009 10:17:00 PM

Here is a video of Mish from Global Economic Analysis giving a talk at Google (most Q&A). Yes, I helped him get started ...

Update: To be clear, I disagree with Mish on many points. I didn't want to turn this into a debate ...

by Calculated Risk on 6/04/2009 07:26:00 PM

S&P put out a report this afternoon: The Potential Rating Impact Of Proposed Methodology Changes On U.S. CMBS. A few excerpts:

In our preliminary review of outstanding transactions, there were a number of recent-vintage transactions that required 'AAA' credit enhancement of more than 30% using our 'AAA' stress, which implies that super-senior classes within those deals would be downgraded.
...

Transactions from the 2007 vintage are likely to experience the greatest impact if the criteria are adopted, as most tranches currently rated 'AAA' with 30% credit enhancement ("super dupers") would likely be downgraded. The downgraded classes would have a weighted average rating (WAR) of 'A'.
...

Shorter weighted-average life 'AAA' classes benefit from structural protection and would likely perform better than longer-weighted average life 'AAA' classes. Of the A-2 (five-year) classes from 2005-2007, 25% of the 2005 deals (12 classes, 12 transactions), 10% of the 2006 deals (five classes, four transactions), and 25% of the 2007 deals (15 classes, 13 transactions) are potentially at risk for downgrade based on our analysis.
...
Ten-year super-duper (30% credit-enhanced) classes have a higher potential for downgrades than the shorter weighted-average life classes: 50% (2005), 85% (2006), and 95% (2007) of the super-duper 'AAA' tranches would likely be at risk.

Note: This appears to be a change from the request for comments issued May 26th, but it really isn't. In the request for comment S&P stated: “approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded.” However that included both shorter and longer weighted-average life classes. It is the Ten-year super dupers that will be hit the hardest.

by Calculated Risk on 6/04/2009 05:47:00 PM

From Bloomberg: Dudley’s TALF Comments Add Signs of a PPIP Stall (ht Brian, Bob_in_MA)

The Federal Reserve may not start lending against residential mortgage-backed securities under its Term Asset-Backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley indicated.

“We’re still in the process of assessing whether a legacy RMBS program is feasible, and if it were feasible, whether it would be significant enough to make a major impact,” Dudley said at a conference today ... His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling

From the Financial Times: Fed damps hopes on mortgage-backed securities

The US Federal Reserve on Thursday damped expectations that it was preparing to prop up the market for distressed bubble-era securities backed by mortgages.

Hopes that the Fed would in the coming months start providing financing to investors seeking to buy residential mortgage-backed securities (RMBS) – many of which have lost their triple A credit ratings – have pushed prices on these assets higher in recent months.

William Dudley, president of the Federal Reserve Bank of New York, said on Thursday that a decision had not been made. “We have not made a final decision on whether it is doable and, if it is doable, whether it is worth the cost,” he said.

by Calculated Risk on 6/04/2009 03:23:00 PM

The difference in yields between Treasury two- and 10-year notes widened to a record again today ... The so-called yield curve steepened to 2.79 percentage points, surpassing the previous record of 2.75 percentage points set last week. The previous record was 2.74 on Aug. 13, 2003.

Click on graph for larger image in new window.

This graph shows the difference between the ten- and two-year yields.

Usually a steep yield curve precedes a period of decent growth, but several analysts suggest the current ten year sell-off is due to concerns about increased Treasury issuance to finance the deficit. Whatever the reason, mortgage rates higher are moving higher, from Freddie Mac: Mortgage Rates Climb in Response to Recent Rise in Bond Yields

Freddie Mac (today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.29 percent with an average 0.7 point for the week ending June 4, 2009, up from last week when it averaged 4.91 percent. Last year at this time, the 30-year FRM averaged 6.09 percent.
...
"30-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high," said Frank Nothaft, Freddie Mac vice president and chief economist."

Update: From Bloomberg: Treasuries Fall as Claims Drop Suggests Worst of Slump Ending (ht speed)

Yields on 10-year notes approached a six-month high ... The difference between two- and 10-year notes steepened to a record 2.793 percentage points as the U.S. announced it would auction $30 billion in 10- and 30-year securities next week.
...
The increase in Treasury yields have also driven rates on mortgage-backed bonds higher, leading holders of the securities to sell U.S. debt used as a hedge to protect portfolios against rising interest rates. The same trade helped drive 10-year Treasury yields to 3.75 percent last week, the highest since November.

“There is mortgage selling going on,” Mizuho’s Combias said. “The volatility is causing all the big mortgage portfolios to have to hedge.”

Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds rose 19 basis points to 4.72 percent, up from 3.94 percent on May 20.