6/10/10

Most rate prices worsened today as mortgage bonds follow treasuries into negative territory, pressured by improved global economic sentiment (China, Japan, Australia), better than expected job data and pre-auction set up. Today’s downward trend smells more like consolidation than signaling a breakout to the downside—trade has been light and is exacerbating volatility today as money managers and hedge funds command the selling so far. The stock market is responding positively to developments across the pond as both Portugal and Spain pull off successful bond offerings and ECB president Trichet pledges to continue to offer unlimited cash to struggling institutions and buy government bonds. He also defended the Euro as a valid currency and the market is responding accordingly. This is all well and good but the whisper over the shoulder is “double dip”. This is the real fear because it is widely accepted we’ve used all our bullets to combat recession and if we get another move down, we really don’t have any tools to counter it. This might explain the market’s grasping onto any bits of positive news it can.