News and Notes for the Close-March 7, 2009

Mortgage bond prices closed near unchanged since pricing in relatively quiet trading this afternoon. The DOW surged 379 points this afternoon in the strongest showing this year. Recent headlines have Citigroup's CEO stating the company is having the best quarter since 2007. Generally stocks and bonds trade inversely, though not always the case. With the Fed continuing to funnel money into mortgage bonds as we continue to note by the billions, mortgage bonds were able to stem any additional losses today. The official stats aren't released until well after the fact. February 26 through March 4 the Fed pumped in $5.8 billion. They continue to buy mortgage bonds which is helping keep rates in check. We aren't seeing lower rates but we also have yet to see the typical spikes higher when stocks rally like they did today. So in effect, in the short term, they have been able to generally sustain rates at these levels.

The 3 year note auction this afternoon was slightly weaker than average. $34B of 3YR notes were auctioned with a 2.26 bid-to-cover and an indirect bid @ 40.3%. The long end of the market continued to slide following the auction.

A 10 year auction will take place Wednesday afternoon. A 30-year auction will take place Thursday. The additional supply, especially on the long end of the yield curve may make it a difficult week for mortgage rates. Treasury debt competes with mortgage-backed securities for available funds. Globally governments are issuing record debt to raise cash for the bailouts. One concern among traders is the amount of debt may overwhelm available investment dollars causing rates to spike to attract buyers. The more debt that gets issued both here and abroad makes this more likely.