Thursday, May 26, 2011

Market UpDate

Treasuries were mixed on Wednesday as short and medium term notes benefited from the day’s scintillating 5-year auction. The 5-year was +2/32 (1.762), the 10-year was -4/32 (3.129) and the 30-year was -18/32 (4.279). Yesterday’s government bond sale elicited even greater demand than Tuesday’s 2-year auction. Meanwhile, strength in equities weighed on longer dated bonds. In other news, April durable goods orders posted the largest decline in 2011, disappointing pundits’ expectations. Mortgages were mostly unchanged on another day of modest flows. There was greater support for lower coupon versus higher coupon MBS throughout the day.

Treasury prices are lower this morning due to strength in global equities. The 10-year is -7/32 (3.154) and the 30-year is -14/32 (4.304). Government bond prices may be showing the effects of this week’s abundance of supply. This week’s $99 bln auction carnival culminates with today’s $29 bln 7-year T-note offering. Also today, the Q1 GDP is expected to be revised higher, benefiting from an anticipated increase in Q1 personal consumption. Finally, both weekly initial unemployment claims and continuing claims are expected to fall, building on last week’s declines. MBS prices are a bit lower this morning on the last full trading day of the week, there is an early close tomorrow at 2:00PM ET. The FN 30-year 4.0% for June settlement is trading at a price of 100-03.

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