Here is an excerpt from guest author Brad Malkin, briefly discussing several key points in the Market;
Last Week; a slight increase in long term interest rates, but the larger jump in rates was at the short to middle of the curve. In the wider perspective the rate markets are relatively calm, the drivers last week were the continuing concerns over sovereign debt problem in Greece and concerns other European countries may suffer the same fate, having to cut spending more than possible to avoid defaulting on its debt payments. Not just Greece, Ireland, Spain, Portugal and Italy are struggling with the same problems; so far however they haven’t slid to the level of Greece’s debts. The EU and IMF eventually will step up and keep Greece from defaulting but the path to there from here is filled with daily fears that keep investors worried. Last week the housing data was for March surprised, especially new home sales that jumped 27% with upward revisions for Jan and Feb; the homebuyers tax credit driving buyers to new homes and less to existing homes which were still strong at +6.8%.
This week; two points to focus on. Starting Monday afternoon Treasury will be busy borrowing; $11B 5 yr inflation indexed notes will be auctioned on Monday. Treasury will hit the borrowing window Tuesday with $44B of 2 yr notes, Wednesday for $42B of 5 yr notes and Thursday $32B of 7 yr notes. The borrowing is expected to be well bid by investors but will keep a lid on any rallies in the treasury markets until at least mid-week after the demand for the early auctions are measured. The other key focus this week; the FOMC meeting beginning on Tuesday and concluding Wednesday afternoon with that policy statement that is sliced and diced for clues as to its meaning for future rates. One discussion will center on the Fed’s balance sheet that has ballooned to over $2T; there were a number of FOMC and Fed officials past and present that want the Fed to begin selling those assets, key to the asset sales is the $1.25T of MBSs the Fed bought in the past year. Although we do not expect the Fed would sell MBSs at amounts that would drive mortgage rates higher, how the debate goes will be interesting; problem is we won’t know much about it until the FOMC minutes are released in three weeks. Rate markets this week will likely be under a little pressure all week with supply and continual improvement in the equity markets.
Brad Malkin | Vice President of Sales
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