Monday, 3/8/10 10:09 AM

A weaker start in the rate markets this morning with the stock indexes unchanged at 9:00 this morning. In Asia stocks rallied on better employment reports, in Europe retail sales were better than expected. The decline in US jobs was less than expected and the unemployment rate held unchanged at 9.7%; Asia is getting a boost this morning on the increased view that US job markets have likely bottomed. At 9:00 the 10 yr note -10/32 3.71% +3 BP, mortgage prices -7/32 (.22 bp). At 9:30 the DJIA opened +5, 10 yr note -9/32 and mortgage prices -4/32 (.12 bp) frm Friday's close.

There are only a few data points that will garner attention this week; they do not appear until Thursday and Friday when retail sales, weekly jobless claims and the U. of Michigan consumer sentiment index hit. The key this week is Treasury auctions; a total of $74B in 3 yr and 10 yr notes and a 30 yr bond on Tuesday, Wednesday, and Thursday. While the rate markets don't pay direct attention to them; Treasury also will sell an additional $136B in Treasury bills (obligations with one year or less in duration). Each month Treasury sells $192B in notes and bonds (2 yr through 30 terms), so far the demand for the debt has been very good, foreign investors and direct bidders (anonymous) are stepping up to the table of deficits to fund it. This week's auctions are expected to see equally strong demand.

The interest markets were still holding firm until Friday, hitting up against strong technical resistance on the bellwether 10 yr note at 3.60%/3.58%. Its been a solid resistance level since mid-January; the 10 yr note closed at 3.68% last Friday after declining to a 3.59% close the previous Friday (2/26); last week the 10 yr tested the resistance level everyday, until Friday. The 10 yr note rate at Friday's close is the highest since 2/23.

Mortgages have held strong against treasuries recently, ignoring the choppy and generally non-trending treasuries. Although the mortgage markets are presently holding well, if treasury rates break out to an up-trending move (3.75% on the 10 yr) at 9:13 today at 3.73%,  mortgage rates will follow quickly. Unless there is a major shift in sentiment about the strength of the economic rebound interest rates won't likely decline much more. The overall view is for increasing rates this year; estimates from 4.15% on the 10 yr note to as high as 5.00%; we don't see 5.00%, more likely 4.25%. That would mean 30 yr mortgage rates at 5.50% to 5.60%.

The Greece debt crisis is easing and not as much concern as it was in the past few weeks. Some of the support in the treasury markets was due to safety moves on concerns Greece and other struggling European economies would set off a domino impact on debt defaults. Over the weekend  French President Nicolas Sarkozy pledged support for Greece;  markets rallied after he said yesterday the euro region is ready to rescue Greece should the government struggle to fund its budget deficit.

Nothing today in economic news; the bond market is setting up for the $74B of auctions this week with tomorrow's $40B 3 yr notes. 

This Week's Economic Calendar:

          Tuesday;

             1:00 PM $40B 3 yr note auction

         Wednesday;

             7:00 AM Weekly MBA mortgage applications data

             10:00 AM Jan wholesale inventories (+0.2%)

             1:00 PM $21B 10 yr note auction

             2:00 PM Feb Treasury budget (-$210.0B)

        Thursday;

             8:30 AM weekly jobless claims (-9K to 460K; continuing claims -5K)

                          Jan trade balance (-$41.0B)

             1:00 PM $13B 30 yr bond auction

        Friday;

             8:30 AM Feb retail sales (+0.2%, ex auto sales unchanged)

             9:55 AM mid-March U. of Michigan consumer sentiment index (73.8 frm 73.6 at the end of Feb)

             10:00 AM Jan business inventories (+0.2%)

By 10:00 the stock market indexes were struggling to hold slight gains. The rate markets, with auctions ahead, won't have rally power unless there is a sizeable decline in the equity markets. Technically, the 10 yr still is managing to hold around 3.70% but the outlook is questionable; the note cannot break 3.60%/3.58% resistance. As long as the 10 yr holds below 3.75% on a closing basis the tight range will be intact. A break above 3.80% will send the note to 4.00% and drive mortgage rates higher with it. Depends on what stock indexes do in the next few weeks; there are still many looking for a double dip for the economy.

PRICES @ 10:00 AM

10 yr note:                         99.10 -6/32 3.71% +3 BP

5 yr note:                           100.02 -3/32 2.36% +2 BP

2 Yr note:                           99.30 unch 0.90% unch

30 yr bond:                         99.10 -9/32 4.67% +2 BP

Libor Rates:                        1 mo 0.230%; 3 mo 0.254%; 6 mo 0.395%; 1 yr 0.867%

30 yr FNMA 4.5 Mar:           @9:30 101.03 -4/32 (.12 bp) (-6/32 (.18 bp) frm 9:30 Friday)

15 yr FNMA 4.0 Mar:           @9:30 102.00 -3/32 (.09 bp) (-3/32 (.09 bp) frm 9:30 Friday)

30 yr GNMA 4.5 Mar:          @9:30 101.19 -4/32 (.12 bp) (-6/32 (.18 bp) frm 9:30 Friday)

15 yr GNMA 4.0 Mar:          @9:30 102.24 -3/32 (.09 bp) (-5/32 (.15 bp) frm 9:30 Friday)

Dollar/Yen:                         90.32 -0.13 yen

Dollar/Euro:                       $1.3683 +$0.0054

Gold Apr:                           $1129.30 -$5.90

Crude Oil Apr:                    $81.82 +$0.32

Goldman-Sachs

Commodity Index:              529.59 +3.25

DJIA:                                10562.95 -3.25

NASDAQ:                          2327.13 +0.79

S&P 500:                          1138.51 -0.19