San Diego Home Mortgage Blog

One down, two to go; this afternoon's record 2 yr note auction continued the trend of strong bidding Supply from Treasury used to cause trepidation in the bond markets, these days it is almost a yawner with unceasing demand for US Treasuries even as the dollar crumbles. The 2 yr note had a rate of 1.034% about where it was trading in the WI market this morning; the bid-to-cover ratio a strong 3.23 and indirect bidders took 45.2% of it. The 2009 averages of 2.78 and 43.75%. The better than expected auction has provided a little relief that tomorrow's 5 yr and Thursday's 7 yr note auctions will also get strong acceptance. The August, $42B 2-yr offering saw 1.119% with a bid-to-cover of 2.68 with an indirect bidder participation rate of 49.4%, while, a better showing than the July outing, it was worse than the 2009 average demand of 2.80.

Not much today other than the auction. The stock market continues to increase; up again today but on light volume ahead of the FOMC announcement tomorrow afternoon. Technically, the 10 yr note continues to find buying anytime it hits 3.50%, one of the most obvious support levels on the 10 yr we have seen in a long time. It has hit the support area for the last five sessions and held each time; over the past 25 sessions there was only one day the 10 yr crept above 3.50% but returned to it the following day. Mortgages too are holding their 20 day moving average; not as significant but we will gladly take it, the MBS market is still on life support---not a normal functioning market.

Not a lot to cover today; markets were generally quiet. No real news other than the auction. The FHFA housing price index increased 0.3% in July, the estimate was for an increase of 0.5%. The relentless improvement in the stock market now has the DJIA 4,000 points from its highs when the world believed home prices would increase 10% to 20% until the end of time and Wall Street and banks were so highly leveraged it made leverage in the futures markets look like child's play. How much higher? One analyst commented this afternoon, many have missed the strongest rally in 50 yrs and many that did participate continue to be nervous. With that as the background the market may well move higher. Not bothering interest rates anymore though. Until the last moth or so when stock indexes moved higher the rate markets suffered; these days both are improving, although the rate markets are almost at levels they will not likely fall below.

No economic data tomorrow. At 1:00 the second of the three auction $40B of 5 yr notes up for bid, as noted above markets are no longer worried about supply (for now), so the auction has had no negative impact on the 10 yr note or mortgages. The on-the-run 5 yr note today was down 5 basis points, not the kind of action we would have seen in the past. China says, we will take your dollars from exports and send them back for US treasuries, we don't care that the dollar is crumbling. How much longer can that logic hold?

Tomorrow afternoon at 2:15 the FOMC will issue the encrypted short policy statement; at the moment markets are not expecting any bombs to be dropped.

PRICES @ 4:00 PM

10 yr note: 101.15 +10/32 3.45% -3 BP

5 yr note: 99.25 +6/32 2.42% -5 BP

2 Yr note: 100.02 +2/32 0.96% -4 BP

30 yr bond: 105.01 +21/32 4.20% -4 BP

Libor Rates: 1 mo 0.246%; 3 mo 0.285%; 6 m0 0.668%; 1 yr 1.270%

30 yr FNMA 4.5 Nov: 100.06 +3/32 (-1/32 frm 10:00)

15 yr FNMA 4.0 Nov: 100.25 +2/32 (unch frm 10:00)

30 yr GNMA 4.5 Nov: 100.12 +3/32 (unch frm 10:00)

15 yr GNMA 4.0 Nov: 101.15 +3/32 (-1/32 frm 10:00)

Dollar/Yen: 91.15 -0.84 yen

Dollar/Euro: $1.4798 +$0.0184 (weakest in over a year)

Gold Dec: $1.016.120 +$11.230

Crude Oil Oct: $71.55 +$1.84

Goldman-Sachs

Commodity Index: 465.33 +9.72

DJIA: 9829.87 +51.01

NASDAQ: 2146.30 +8.26

S&P 500: 1071.66 +7.00