For the most part, markets are quiet, trading just above unchanged. Oil and gold up, the dollar down, and stocks up a baker’s dozen on the big board. Bonds, notes, and MBS are a mixed bag with the 10 year note off 3/32’s (yield 3.82%) and MBS current coupon up 1/32nd. The week ahead will feature little news until Thursday’s dose of Retail Sales, Weekly Unemployment Claims, Import Prices, and Business Inventories. Friday’s finale will feature a heavy slate as well. CPI, inflation at the consumer level, will be the highlight.
Tuesday, Wednesday, and Thursday’s trade will have to content with 84 billion in auction paper. 3’s, 10’s, and 30’s will all cross the auction block. Given the paper, a defensive strategy should be taken as we look for a 3.78% to 3.88% range on the 10 year note. The curve is at record steep levels but should unwind a touch (flatten) as we get through the bond auction on Thursday.
Interesting article in the Hartford Courant on Saturday which featured Fed Governor Rosengren talking about the direction of mortgage rates “if” the Fed ends its MBS purchase program. “If” the program ends, he is looking for a bump in mortgage rates of .75% from today’s levels. He also went on to say that the Fed could extend the program if the economy deteriorated dramatically. In our opinion, this program and the 8K stimulus MUST be extended until the housing industry gets back on solid footing. Let’s hope they get it right.
Technically, the market has not been able to form a strong bias over the past few sessions despite very oversold conditions. From our work, the chart is trapped right in the middle of good support (3.88%) and good resistance (3.76%). Given that the spread between 2’s/10’s and 2’s/30’s are at historic wides, odds favor a little improvement in pricing once the auctions are out of the way. Until we see who shows up to buy all this paper, keep your defense on the field, selling strength if the opportunity presents itself. One more thing; Congrat’s to all you Cardinal, Raven, and NY Jet fans. And oh ya, how bout’ them Cowboys!