7/30/09

Good morning. Yesterday interest rates moved slightly higher which was caused by a poor 5-yr auction. As you probably know, the Treasury sells bills, notes, and bonds in order to finance their activities. The maturity of these instruments is spread out over time, depending on their expected needs. This week, when the 2-yr auction did not go well many believed that it might have been a “fluke”, and were hoping that the demand for the 5-yr note yesterday would be better. Unfortunately, they were disappointed, and given the overall size of the government sales this week, and in the future, analysts are becoming increasingly nervous. On top of that, yesterday’s auction had “indirect bids” of less than 37%, which means that foreign entities bought far less than hoped.
Suddenly, as if this had ever gone away, economists are reminding us that rates can indeed go up not only because of a strengthening economy but also because of overwhelming supply. And although the Fed has been buying securities backed by mortgages, all rates may slide higher. Along those lines, the Fed released their “Beige Book” yesterday discussing the economy in their various districts. Up popped phrases such as “consumer spending below year-ago levels”, “regions report stable or weaker lending”, “soft labor markets”, and “sluggish retail sales”.
Besides the 7-yr auction today, the only news out will be weekly Jobless Claims. So look for rates to move based on the auction results later this morning, along with movements in the equity markets. Currently mortgages are roughly unchanged.