Not much going on as we enter holiday week two of two. The 2 year note auction hit the tape however, posting a yield of 1.089% with indirect bidders taking 35% of the issue. The bid to cover was 2.91 to 1 and the 44 billion dollar devil grew a 1.4 bps tail. The indirect bidders saved this auction, otherwise we would refer to it as a Toy Poodle or in Texas, a Chihuahua (small dog). Light volume is all that’s happening in both stocks and bonds, with the 10 year note off 8/32’s (yield 3.84%) and mortgage backs off 7/32’s. Stocks aren’t much better, down 6 or so points on the big board. Momentum on the fixed income side (notes, bonds, MBS) is decidedly bearish but losing some of its power. These reading are expressed by a number of studies such as Trend Intensity, RSI, and MACD. This is starting to look a little long in the tooth as the market tries to carve out the low end of a new trading range. We had called for a new target of 3.88% on the note which should provide good support. We have been within a whisker. Another point of bullish contention or at least optimism is that month end, year end extensions (hedge funds, mutual funds, etc.) are quite large. The treasury complex needs to extend .06. The average is .02. The Government/Credit index also needs to tack on .06 years, double the average. MBS extensions needed are a hefty .07 years. This will force fixed income traders to buy the market and should help our pricing into year end. Trouble is, every sector of the curve remains weak and cannot be trusted. Until we see a bottom (which we feel is close) you must stay on defense. Kind of a Yogi Berra thing, “it’s not over till it’s over”.

With Permission & Courtesy of Scott S. Eggen
Senior Vice President – Capital Markets

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Sam Cowen, NMLS ID#: 176693
Branch Manager, Lending in 47 States
PrimeLending | a PlainsCapital Company
2007 N Collins Blvd Ste 403 Richardson, TX 75080
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