Currently, the 10 year note is down 1/32nd (yield 3.45%), mortgage backs unchanged, and stocks up a baker’s dozen.  Typically, this week and next trade the least amount of volume of the year.  Reason is it’s the last time to take vacation before the kids go back to school (most of the country starts 9/8).  The 5 year note auction just hit the tape.  Give it a B+ as 39 billion hit the screen at 2.494% with strong indirect demand of 56%.  Bid to cover was 2.51 to 1 and the only negative was a 1.4 basis point tail (difference between the screen price and the last bid to be filled).

Tomorrow’s 7 year note auction will be the true test for the market.  One of our loan officers asked if the re-appointment of Gentle Ben to a second term has affected the market.  Answer is, not really.  Most expected it and in our opinion, it was the only choice the administration had.  Since the Fed Chief did a decent job of keeping the country from depression number two, President Obama felt that any change would be disruptive to the markets.  What if he changed leadership at the Fed and things went south again?  The Prez would take all the heat and probably be four and out.  So to be on the safe side, why not let the Fed Chief who built the bomb be the one to dismantle it (Fed Deficit).

Technically, the chart still looks bullish but is starting to tire.