Thursday, 3/11/10 4:10 PM

Treasury finished the 3 auctions this week with the $13B 30 yr bond, the 30 went better than most were expecting even though most were expecting a strong demand. The rate was lower than expected at 4.679% with a cover of 2.89 and indirect bidders taking 23.9% while the direct bidders for the first time gobbled up more than indirects taking 29.3% of it. The previous $16B 30   yr saw 4.720% with a bid-to-cover of 2.26, an indirect bidder participation rate of 28.5% and a direct bidder take of a whopping 24.1%. The 10 auction average is 2.47 cover, 41.47% indirect take and a 7.98% direct accepted.

The issue of the direct bidders remains a sticky wicket as the market doesn't know where or who those bids are coming from. Traders are still not sure just how to handicap the situation in the current environment. Not knowing who the direct buyers are leads to concerns the debt is not in strong hands and could be dumped rapidly sending rate markets spiking higher. The market is still facing global supply of unprecedented levels and that will keep a lid on prices, investors are rushing to add duration. Some traders seeing the move to long durations as evidence that the short term markets are still unreliable causing businesses to borrow with longer terms. On the reaction to the 30 yr auction the 10 yr note struggled back to unchanged and mortgage prices moved up a little, from -.15 bp to -.03 bp). Investors are seeking higher interest rates on long-term U.S. government debt as President Barack Obama borrows record amounts to sustain the recovery.

Tomorrow some meat on the table; Feb retail sales at 8:30 expected to be up 0.2% but when auto sales are eliminated sales are thought to be unchanged. At 9:55 the U. of Michigan consumer sentiment index is expected to improve slightly to 73.8 frm 73.6. At 10:00 Jan business inventories expected to be up 0.2%.

The Senate Banking Committee is expected to release its regulatory overhaul on March 15th according to committee chairman Chris Dodd. Once again Republicans are not lining up with what the Committee will recommend. These days Washington is so divided between Republicans and Democrats maneuvering for the elections in Nov they appear resolute to fight each other. Republicans saying this afternoon they want to work with Dems, but that comment is spouted everyday with no substance. The main sticking point in Senate negotiations has been how to interpret Obama’s plan to create an independent consumer agency. Dodd and other Democrats supported the idea, while Republicans opposed it, saying it would create a new bureaucracy and separate banking and consumer regulation.

The bond market is ending fractionally weaker at the middle and short end of the curve, the 10 yr unchanged and the 30 yr bond stronger on the very solid 30 yr auction demand. Investors are moving out the curve, looking for extended terms; can't say what it means but the yield curve is about as steep now than its been in 30 years. One take away is that markets are not worrying much about inflation even with the jump in inflation in China. The rate markets as well as the equity market are flat-lining so far this week, not any conviction on which way the next moves will go. Mortgage rates unchanged on the week with prices for FNMA 30 yr mtgs at 4:00 this afternoon up just 3/32 since last Friday's close (.09 bp). 

PRICES @ 4:00 PM

10 yr note:                        99.05 -1/32 3.72% unch               

5 yr note:                          99.26 -4/32 2.41% +3 BP

2 Yr note:                          99.27 -3/32 0.95% +4 BP

30 yr bond:                        99.11 +15/32 4.66% -3 BP

Libor Rates:                       1 mo 0.230%; 3 mo 0.257%; 6 mo 0.393%; 1 yr 0.861%

30 yr FNMA 4.5 Apr:          100.30 -1/32 (.03 bp) (+2/32 (.06 bp) frm 9:30)

15 yr FNMA 4.0 Apr:          101.28 -2/32 (.06 bp) (+1/32 (.03 bp) frm 9:30)

30 yr GNMA 4.5 Apr:          101.19 -2/32 (.06 bp) (+2/32 (.06 bp) frm 9:30)

15 yr GNMA 4.0 Apr:          102.20 unch (+2/32 (.06 bp) frm 9:30)

Dollar/Yen:                         90.57 +0.08 yen

Dollar/Euro:                       $1.3676 +$0.0022

Gold Apr:                          $1109.30 +$1.20

Crude Oil Apr:                   $82.21 +$0.12

Goldman-Sachs

Commodity Index:              526.54 -1.12

DJIA:                                10611.84 +44.51 

NASDAQ:                          2368.46 +9.51

S&P 500:                          1150.24 +4.63