To borrow from the great Winston Churchill:
I cannot forecast to you the action of the markets. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key.
For now, the “key” is supply and demand, especially when it comes to treasuries and mortgage-backed securities. Capitol Hill is not helping much as well. With what seems to be too many cooks in the kitchen, the course of stateside and global economic direction could be effected for generations to come. Let’s hope they get it right.
ADP, the private payroll firm, came out with its prediction for Friday’s Employment release. Citing a huge drop in both service and goods producing jobs, their best guess is minus 522K jobs. For once, they are close to market expectations which peg the number at minus 525K. Our official forecast will be out on Thursday.
The “supply” I talked about earlier, will come in the form of 32 billion 3-year notes, 21 billion in 10-year notes, and 14 billion of 30-year bonds. All part of next week’s Treasury refunding announcement. Throw in a few billion of cash management bills, etc. and the total is over 100 billion.
With so much uncertainty in the market, finding willing buyers for all this paper will be a challenge. That’s why we are seeing this concession, driving yields higher, looking for a level that is attractive for investors. Mortgage backs are unfortunately tagging along, down 7/32’s as we speak.
Technically, this thing looks like a dog. The channel line we have been talking about which should have been good support, has failed to hold the market. Targets on the chart now point to support on the 10-year note between 3.00% and 3.06%. Currently, we are down 22/32’s at a yield of 2.92%. If you are looking for a silver lining, the best we have is something positive (stimulus package, etc.) out of President Obama and his band of tax cheaters.
Good luck to all of us.
For now, we will preach the same message we’ve been preaching for the past 10 days. This market is dangerous and waiting for 4% to 4.5% mortgage rates is fool’s gold (at least for now). Lock em’ in and don’t play in the street (Wall Street).