Recap of Yesterday....

  • White House says budget deficit is too high...could bring about the Crowding Out Effect. Remember: Bernanke has mentioned he is concerned about the budget deficit and the value of the dollar.
  • IMF sells 200 metric tons of Gold to India for $6.7billion. READ MORE
  • Warren Buffett makes his largest-ever acquisition: Burlington Rail. Pays $26billion
  • Dollar Index hit a one month high against a basket of currencies. Dollar Index +0.07% to 76.345. Hit intraday high of 76.817
  • Crude oil ended the day +1.61% at $79.39 while Gold prices got more expensive...+2.43% to $1,084.
  • The S&P and NASDAQ rose while the Dow fell. S&P +0.24% to 1,045. NASDAQ +0.4% to 2,057. Dow -0.18% to 9,771.
  • The yield curve steepened. The 2yr TSY note ended the NY session yielding 0.921% while the 10yr note was yielding 3.467%.
  • The FN 4.0 ended the day -0-05 at 95-05 yielding 4.19% and the FN 4.5 headed out the door trading -0-04 at 100-27 yielding 100-27 4.399%.
  • The secondary market current coupon closed at 4.347%. +88/10yr TSY and +70/10yr swap. Yield spreads were essentially unchanged on the day as "rate sheet influential" MBS coupons moved in step with their benchmarks
  • Lenders repriced for the worse midday...
  • If you didnt read the MBS CLOSE...you should, it was a good one!

So Far this Morning...

  • SHANGHAI +0.46%, HANG SENG +1.76%, TOPIX +0.08%, NIKKEI +0.42%, CAC +1.96%, DAX +1.45%, FTSE +1.00%
  • Mortgage Applications Increase 8.2%, Refinance Demand Up 14.2%. READ MORE
  • Republicans win Virginia and New Jersey Governor election. READ MORE
  • FTHB Tax Credit Update: READ MORE

ECON DATA: The ADP Employer Report says the US lost 203,000 jobs in October. Worse than the consensus estimate for 190,000 lost jobs, but better than last months revised lower read of 227,000 (from -254,000). This is smallest number of layoffs since July 2008, according to ADP. READ MORE

Treasury Refunding Update: $81billion in debt will refund approximately $35.8 billion. This will raise $42.8 billion in new cash for the Treasury. Here is the breakdown of next week's auctions:

  • $40bn 3yr notes. To be auctioned on Monday Nov.9 at 1pm
  • $25bn 10yr notes. To be auctioned on Tuesday Nov.10 at 1pm
  • $16bn 30yr bonds. To be auctioned on Thursday Nov.12 at 1pm

30yr TIPS will be re-introduced, auctioned in February 2010. 20yr TIPS discontinued. READ MORE

Here are a few statements from the TBAC Report:

  • U.S. TREASURY SAYS CONSIDERING HOLDING MORE FREQUENT TIPS AUCTIONS. TREASURY ADVISORY PANEL RECOMMENDS RAISING TIPS ISSUANCE TO $70-$80 BLN IN 2010 FROM $58 BLN IN 2009 ADVISORY PANEL SAYS MARKET CAN SUPPORT $100-$130 BLN IN GROSS TIPS ISSUANCE IN MEDIUM TERM
  • TREASURY: WILL NEED TO REMAIN EXTREMELY AGILE TO MANAGE DEBT DUE TO TOTAL 3-YR DEFICIT OF $3.5 TRLN
  • GROSS COST BASIS OF MARKETABLE DEBT ISSUANCE IN FY09 WAS LESS THAN 1 PCT
  • U.S. PRIMARY DEALERS SEE FY10 BUDGET GAP AT $1.393 TRLN VS CBO ESTIMATE OF $1.381 TRLN
  • TREASURY ADVISORY PANEL SAYS END OF FED TREASURY PURCHASES COULD PUT PRESSURE ON RATES
  • TREASURY ADVISORY PANEL RECOMMENDS LENGTHENING MATURITIES TO 74 TO 96 MONTHS VS CURRENT 50 MONTHS
  • TREASURY SAYS EXPECTS TO HIT DEBT CEILING IN MID TO LATE DECEMBER

"Despite the increase in third-quarter economic activity and the prospect of additional modest growth ahead, it remains unclear to what extent the economy can expand without the aid of aggressive policy support. Monetary and fiscal policy remains full throttle and contributed importantly to the latest quarter's growth spurt. For instance, "cash for clunkers" lifted consumer purchases of motor vehicles, the first-time homebuyers' tax credit is boosting home sales and traditional public sector automatic stabilizers are supporting household income, while on the monetary side, near zero interest rates and asset purchase and liquidity programs are shifting investor risk preference, improving the cost of capital."

"The conclusions were that the potential for inflation, higher interest rates, and roll over risk should be of material concern.  In most economic scenarios, lengthening the average maturity of debt from 53 months to 74-90 months was recommended.  Committee members commented that while real progress has been made in terms of lengthening the average maturity of US Treasury debt to 53 months, [net issuance in coupons growing from $188.5 billion in 2008 to $1.246 trillion in 2009], more needs to be done in this regard."

So the Treasury is attempting to extend the overall maturity of their debt....means more supply in the long end of the curve!

After morning data and the TSY refunding statement, the 2yr note yield continues to move higher, now trading at 0.936% while the 10yr TSY note is above long standing 3.50% support.

 

The yield curve is steeper. 2s/10s broke the 253bp support level, currently at 257bps. That's a steep yield curve!  

 Rate sheet influential MBS prices are lower this morning.

The FN 4.0 is -0-06 at 98-00 yielding 4.206% and the FN 4.5 is trading -0-04 at 100-23 yielding 4.414%. The secondary market current coupon is 4.372%. The Current Coupon is +86/10yr TSY and +69/10yr swap. The FN 4.5 is +90/10yr TSY and +73/10yr swap.

Here is the FN 4.5 two day...

READ THE MBS CLOSE!!!