As predicted, Friday’s bearish close, along with this week’s record 137 billion in treasury auction supply has kept the market under pressure as we begin a new week. 7 billion in 5 year tips will greet the screen today, followed by 44 billion of 2 year notes on Tuesday, 41 billion of 5 year notes on Wednesday, and 31 billion of 7 year notes on Thursday. This could give the market a bit of indigestion. Traders talk about “no shows at the lows”, meaning that buyers will not show up even at cheaper levels. We believe that a strong overseas bid will continue and with most of paper being shorter in duration, the auctions “should” be much ado about nothing.
Zippo on the data front today but Case Shiller Home Price Index and Consumer Confidence will show up tomorrow. Durable Goods and New Home Sales hit the tape on Wednesday while Advanced 3rd Quarter GDP and Weekly Claims will print on Thursday. Friday’s frightening data will be the ADP Employment Report, the Employment Cost Index, Personal Income, and the Milwaukee ISM Purchasing Managers Report.
Market players jumped the market early, taking the 10 year note down 24/32’s to yield 3.55%. MBS opened off a smooth 10/32’s while stocks were little changed. Leveraged traders hit the market with large ticket sell orders from managed futures and macro cash funds. Real money traders (Japanese Banks) have since stepped in, buying 2’s through 5’s yet are no match for money funds liquidating long end paper. It has helped however as the 10 year note is now off 12/32’s (yield 3.52%) and MBS down 6/32’s. Stocks have taken a bit of a whoppin’, down 100 plus as we speak. With the yield crossing over the 3.50% mark, the tactical bias is to stay neutral/ defensive until the auctions are in the books. We’re looking for a futures print of 116 17 as the bottom (yield equivalent of 3.62%) before a meaningful rally can begin.
Congrat’s to the Philly’s and the Yankee’s on their respective championships. Should make for a great World Series!