Benchmark interest rates continue to trend higher this morning even as equity futures point toward a lower open following marginal gains yesterday.

S&P 500 futures are down 5.50 points to 1,177.25 and Dow futures are trading 44 points lower at 11,080. 

Ahead of a $35 billion 5-year Treasury note auction, the 5-year note is -9/32 at 99-23 yielding 1.306% (+5.3%) and the 10-year Treasury note is -17/32 at 99-09 yielding 2.709% (+6.2bps). The December FNCL 3.5 is -9/32 at 99-24 and the FNCL 4.0 is -0-07 at 102-11.

The US$ index continues to strengthen this morning ― it is up 6 basis points to 77.77. Light crude oil is 1.07% lower at $81.67 per barrel, and gold prices are 0.92% lower at $1,326.35 per ounce.

Meanwhile, the Wall Street Journal printed an influential article about the Federal Reserve’s plan for additional quantitative easing.

“The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis,” the newspaper wrote, adding that officials seek to avoid the “shock and awe” approach this time.

Key Events Today:

7:00 ― MBA Mortgage Applications, just released, rose 3.2% last week. 

Purchase applications reversed two weeks of declines and rose 3.9%. Economists at BMO Capital Markets note that purchase applications remain near 14-year lows and are down 30% in the past year. 

“Refinancings rose 3.0% last week and have nearly doubled in the past year due to record-low mortgage rates, putting some extra money in people’s pockets,” they added.

8:30 ― New orders for Durable Goods are anticipated to rise 1.6% in September, reversing the 1.5% decline seen in August. A major gain in Aircraft orders should deliver a boost to the index as Boeing took in 257 new orders in the past three months, which economists at Nomura note is the most since April 2008. When transportation is excluded, orders are expected to advance just 0.4%.

Analysts at BBVA remind us that durable goods fell a month previous because transportation equipment dropped 10.2%, equivalent to $5.3 billion. 

Economists at IHS Global Insight say the index in unpredictable because of this aircraft volatility. They note that Boeing garnered more than $12 billion of orders in September with 117 orders for planes, including 84 on the last day of the month.

“The main downside risk to the anticipated surge would come if the late-month orders don’t show up in the official statistics until October,” they said. “Outside of aircraft, it should be another lackluster month, with the reversal of some of the positives that blew core capital goods orders up by 5.2% in August.”

10:00 ― New Home Sales are expected to increase 4% to an annualized pace of 300k in September, up from 288k in August. As the effect of the first time homebuyers tax credit expiring wanes, sales are anticipated to inch forward. The NAHB index of homebuilder sentiment also rose 3 points in October, though the overall level was still still dozens of points away from indicating optimism. 

Economists at IHS Global Insight note that single-family housing permits, which predict new homes sales, “inched up 0.3% in September after declining for five straight months.”


Other Events

12:00 Sep Chicago Fed Midwest Manufacturing Index (prev -1.4% m/m)
16:00   FRB New York's Dudley (voter) on the state of the regional economy
* 11:30   Treasury auctions $25 bln 56-day SFP bills
* 11:30   Treasury auctions $22 bln 4-week bills
* 13:00   Treasury auctions $35 bln 5-year notes