After an early morning dip, notes, bonds, and mortgage backs are seeing a comeback. Stocks on both the Dow and the Naz are in the soup, down 83 and 23 respectfully. The 3 year auction is in the books with 35 billion of the new issue crossing the tape to yield 1.519%. Indirect bidders were strong, taking 54% of the issue. The “street” however did not show up, causing a 2.7 bps tail at the bell. Bid to cover ratios were average at 2.62 to 1. We’d rate this a 7 on a scale of 1 to 10, allowing a little more nervousness to creep in before tomorrow’s 10 year and Thursday’s 30 year sale.
Although the day began with neutral trend structure, today’s action has been bullish so far. Continued buying will allow the bulls to take control of the market yet this is too early to confirm, given the longer dated auctions coming the next two days.
Looking at the bigger picture, it’s hard to see much of any growth coming from a consumer that is becoming increasingly delinquent on credit card debt, home improvement loans, and quality first mortgages. The unemployment picture has had a lot to do with this. Since consumer spending makes up nearly 70% of GDP, slow growth and lower interest rates should be with us well into 2010.