7/9/09

Good morning. Not only did the 3-yr auction go well on Tuesday, but yesterday’s 10-yr auction exceeded all expectations. The “bid to cover” ratio, which is a measure of demand, was 3.28, basically meaning that for every note purchased there were over 3 bids. And the “indirect” bid, typically from foreign entities and non-primary dealers, was 44%: a very high level. Mortgages tagged along for the ride and we saw some improvement yesterday. For an interesting side note, consumers appear to be saving money: personal income is up slightly, personal consumption is down. What are folks doing with their money? Keeping it in the bank. And what are the banks doing with the cash? Uh, how about investing it in safe Treasury securities?
Weekly jobless claims was the trigger this morning as new claims plunged by 52K (expectations were for a 4K decline). Continuing claims however continued to increase to a new high. While we put more emphasis on continuing claims in measuring the health of the employment sector, markets like to focus on headlines and not so much on the larger picture when trading day to day. It appears the markets are now convinced the worst is behind us but the future remains clouded.

At 1:00 this afternoon Treasury will complete the 3 leg auctions this week. As I mentioned, so far the Treasury borrowings over the past month have seen strong demand. Today's 30 yr is somewhat of a maverick with most long term global bonds in the 10 yr range so hard to judge reaction. Stay tuned.