Market UpDate

On Tuesday, Treasuries were under pressure early with the looming Treasury supply. However, the $32 bln 3-year T-note auction came in better than expected with a yield of 0.765% and Bernanke’s comments helped Treasuries rally in the afternoon. The 2-year Treasury finished up 0.75/32nds (0.413) and the 10-year Treasury finished up 3.0/32nds (2.993). Mortgages again performed well closing at least 2.0/32nds tighter to Treasuries on buying from a diverse account base. The FNCL (30-year) 5.5s hit an all-time high during the day of 109-1+. Origination was $1.9 bln on the day and the FNCL 4.0s in June finished up 2.0/32nds (101-3) and the FNCI (15-year) 3.5s in June finished up 1.5/32nds (102-17). The Gold/Fannie 5.0 and 5.5% swaps moved slightly lower (more negative) due to real money e7ubdemand for Fannie 5.0s and Treasury selling of Gold 5.5s. Consumer credit excluding mortgages rose for the seventh straight month in April by $6.25 bln. This was a larger increase than the $5 bln expected, but was offset by a revision to the March figure down to $4.8 bln from $6 bln originally reported. The Labor Department reported that immediate available job openings fell by -151k in April to 2.97 mln open positions. Fed Chairman Bernanke spoke confirming the Fed is still far from QE3, but he did acknowledge the recent weakness in economic data.

Today the Mortgage Bankers Association reported that mortgage applications fell by a slight -0.4% WoW last week. Purchase applications fell by -4.4% WoW and refinance applications gained a modest 1.3% WoW. This is the second straight drop in mortgage applications despite a continued drop in mortgage rates, which have fallen by 60bps since their recent high of 5.14% in February of this year. Accordingly to the Mortgage Bankers Association, the 30-year fixed rate fell to 4.54% last week from 4.58% the prior week and 4.69% the week before that. The Fed’s Beige Book survey will be released today indicating economic conditions on the ground across the country. The markets will be particularly sensitive to any information that indicates weakening consumer spending or a lapse in hiring activity. The markets will also be hoping for a little more background on the extent to which Japanese supply chain disruptions and bad U.S. weather was behind the recent weakness in the economic statistics. The Treasury will complete its second auction of the week with $21 bln in 10-year T-notes. Currently, the DJIA futures are pointing lower 54 points to 12,018.