Just a couple of thoughts and a chart to boot as we close out the day. Good 5 year note auction, nothing new brewing at the FOMC, yet sellers out the curve ( 10 year notes through 30 year bonds) ruled the day. Sidelined money bought both the stellar 5 year auction and dovish FOMC release only to be stepped on by fast money traders looking to set up steepening trades. This is where they buy the short end of the yield curve ( 2 year through 5 year paper) and sell the long end (10’s through 30’s). Part of this is a set up for tomorrow’s 7 year note auction, hedging it up before they have to enter the bidding. The bigger part, in my opinion, is a vote of no confidence in the Fed to do the right thing with respect to inflation. Call it enabling as notes, bonds, mortgage backs, or for that matter, anything fixed income hates inflation. There are a couple of bright spots to talk about. First, take a look at the chart below. This is a bar chart of 10 year note futures. Let’s focus on the time frame (bottom of chart) from 25-07:20 to 26-13:20. This period of time is the opening of trading on Tuesday to today’s close. Yesterday, we had a nice rally, taking the market about 1 point higher from 120 03 to 121 03 as buyers wanted to be long going into the State of the Union address. Once the “news” hit the wire, sellers followed. Looking at today’s trade, we held within the confines of yesterday’s levels. This is called an inside day. Neutral in bias, not bullish or bearish. The key level to watch out for is represented at 3.49% yield on the 10 year note (currently 3.42%). A trade above that yield will worsen our pricing by about .75. So far, it’s not in the cards. One of the reasons for that can be found in the latest Barclays Fixed Income Extension Need Index. This index is generally regarded as the bible that fixed income funds (pension, mortgage backed funds, bond funds, mutual funds for fixed income, etc.) must comply with to meet duration needs within their prospectus. In other words, they must comply. The extensions for this month are quite high, .09 years for Treasuries and .18 years for Mortgage backs. What it means is that funds will need to buy to meet duration needs, supporting our market. Good stuff coming into month end. Tomorrow we’ll take a look at Weekly Unemployment Claims, Durable Goods orders, Pending Home Sales, and the KC Fed index. Lots of data to once again move the market. We kind of like it (market), at least into month end. Hope I’m noting eating my chart this time tomorrow! Have a great night.
Scott S. Eggen
Senior Vice President – Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252
-----------------
© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.
No comments:
Post a Comment