• Fannie 4.5's close down 4 ticks (.125) at 100-21
  • Very tight range all day, from 100-17 to 100-22
  • 10yr yields were between 3 and 5 bps higher most of the day, currently 3.69
  • Stocks were up, but the S&P for instance, was 4 points off it's 4/29 Close
  • Treasury Announces Borrowing Needs (More than estimated but less than previous)

As you might assume, yesterday's IMF Greece Bailout announcement created some negative price pressures for bonds today, but not nearly enough to stir up volume or cause anything meaningful to happen with respect to recent ranges.  It was the lowest volume day since the first day of of April, in part, due to Japan, China, and the UK all being closed today.  There was no discernible reaction to the economic data at 830 or 1000am to boot--a true "non event" of a day.

The exception, perhaps, would be the Treasury's Marketable Borrowing Estimates which coincided with the conclusion of their meeting with the Treasury Borrowing Advisory Committee (TBAC).  So there's some interesting info to digest, both in terms of the changes in issuance as well as the TBAC's statement (not about the issuance, but about the meeting that just wrapped up, following which, the Treasury is known to announce issuance changes). The TBAC might not normally be so interesting except for the significant portion of the statement that is focused on housing and it's role in the "recovery"

Highlights from the TBAC Statement:

  • Activity in housing sector shows some signs of improvement but remains uneven
  • Private inventory change accounted for 1.6% of recent GDP figures. READ MORE
  • "The decline in residential homebuilding activity in the first quarter GDP figures highlights that the housing sector has yet to begin a solid recovery". WHY IS LESS GOVERNMENT SPENDING A BAD THING
  • "Housing starts and building permits have generally stabilized and they moved higher in the first quarter, although both permits and starts remain about 70 percent below their peak levels reached in mid 2005 and early 2006, respectively" DO WE NEED ANYMORE NEW STARTS?
  • "The inventory of homes on the market has fallen a great deal but remains high relative to sales.  The number of unsold new single-family homes stood at a 39-year low in March but was equivalent to a 6.7-month supply relative to sales. " NEW HOME SALES CHARTS
  • The excess supply of homes on the market has depressed homes prices, although prices are no longer falling sharply.  (i.e. "stabilization vs. recovery")
  • "The Federal Housing Finance Agency purchase-only index fell more than 3 percent over the year ended in February, but that was only half the almost 7 percent decline recorded the previous year." You can buy the homes they sell. LENDERS ARE STARTING TO BUY HOMEPATH PRODUCT
  • household wealth fell by about $17 trillion, or 26 percent, from its peak of $66 trillion in the second quarter of 2007 through the middle of 2009

On a non-housing related note, but interesting:

"The economic recovery will help to bring down the budget deficit, which is expected to fall to 5.1 percent of GDP in FY2012.  Actions proposed in the FY2011 budget will trim the deficit further to 3.9 percent of GDP in FY2015.  Even with these improvements, the deficit will still be unacceptably high and generate a rising debt-to-GDP ratio.  To help put federal finances back on a sustainable path, the President has created a bipartisan Fiscal Commission to identify policies to reduce the deficit to about 3 percent of GDP by 2015."

As far as the actual "bringing down of the budget deficit," one place to start would be the relatively lower anticipated issuance announced today. 


  • Treasury expects to borrow $340 billion in April-June quarter, down from $483 bln in January-March quarter, but still $71 bln higher than announced last time in February 2010. 
  • Greater than expected borrowing was chalked up to the Supplementary Financing Program  (SFP) which was created in the throes of the credit crisis, late 2008, to help the Fed manage their balance sheet in light of all the recovery initiatives that would be coming and going.  
  • This puts the 2010 estimate at 1.459 trillion versus 1.786 trillion in 2009.

"The increase in borrowing and the higher cash balance were due to a combination of the increase in the SFP balance, higher receipts, lower outlays, and higher State and Local Government Series net activity."

This should still be a positive for the Treasury market. We get refunding terms on Wednesday morning, this is where we learn the timeline (maturity) in which the Treasury intends to payoff their debt load. The longer the duration of outstanding debt, the worse it will be for production MBS price levels.

9AM on Wednesday


Another way to eke out meaning from what seemed to be a reasonably meaningless trading day is to see where today left us in the context of longer term movements.  In a nutshell, today's closing levels in MBS and Treasuries have not been seen consecutively since the March sell-off.  As some embedded text in the below charts indicate, although this is a positive technical development for bonds, the low volume today (not to mention NFP coming up on Friday) means we'll still be holding out for more confirmation before considering those price ceilings (and yield floors) officially broken. 

Treasury Futures show an even clearer sense of "old range vs. new range"

But perhaps the best illustration of an "old range" that was "rapidly departed" and to which the market has slowly, surely, mathematically, and methodically clawed its way back would be a longer term chart of plain old 10yr yields.  Pretty simple really, but this is what's going on...  NFP is probably the deciding factor in staying "back down here," unless it's equivocal and/or something else makes a big bid for the spotlight in the meantime.