Tuesday, 2/2/10 4:13 PM

Treasuries and mortgages traded quietly all day, but both did manage to hold well with the stock market moving higher all day. Not much interest in buying or selling with employment looming on Friday and tomorrow the ADP job estimate for Jan. Kind of like holiday in terms of activity. 

Paul Volcker testified this afternoon on bank reform; the Administration wants banks to back away from proprietary trading. Volcker hit on the issue; that banks trading for their own account are at times in conflict with bank clients' business interests and at times use the information from customers to increase trading activity (and profits). Banking reform is likely to move forward with banks being controlled on their hedge funds and other proprietary trading. The too big to fail, according to those pushing reform, have cushioned banks from accepting responsibility for trading and substantial losses. Much of the blame for the failure of the banking system is attributed to proprietary trading that went way wrong. Proprietary trading, hedge funds and private equity should stand alone according to Volcker. To affectively reform banks operations would require co-operation from European leaders with their systems otherwise US banks will flee to greener pastures. Volcker was at the Senate today; yet to be heard from, our buddy Barney Frank over at the House.

Tomorrow Treasury will release its borrowing needs for the quarter and the amounts of next week's 3 yr, 10 yr and 30 yr auctions. Last month the three totaled $84B. 

Economic data tomorrow; weekly MBA mortgage applications at 7:00, the ADP employment data for Jan (-45K jobs) at 8:15, at 10:00 the ISM services sector data. On Monday the ISM manufacturing data was the strongest since 2004, equity markets betting today that the service sector will also be strong. 

Jan auto and truck sales out this afternoon; Ford led the way, up 25%, Nissan +16%, GM +14%, Honda -5% and Toyota -16% on those stuck accelerators. In 2009 the total sales at 10.5 mil, up from 9.5 mil in 2008. 

Is Citi back in business? After cutting off many of its correspondents a year ago Citi is making calls again. A few of our clients are telling me that they have been re-contacted about re-joining the big lender. Some however remember the way Citi pulled out, with no notice. We welcome as many as possible back in the game but Citi may not find it easy to re-establish fractured relationships. One way is price, the other is service; Citi was a strong lender back in the day but jumped ship just when it was needed the most.

PRICES @ 4:00 PM

10 yr note:                             97.27 +5/32 3.64% -2 BP

5 yr note:                               99.15 +3/32 2.36% -2 BP

2 Yr note:                              100.01 unch 0.86% unch

30 yr bond:                            97.03 +5/32 4.55% -1 BP

Libor Rates:                           1 mo 0.230%; 3 mo 0.250%; 6 mo 0.383%; 1 yr 0.842%

30 yr FNMA 4.5 Feb:              101.01 +3/32 (.09 bp) (+2/32 (.06 bp) frm 9:30)

15 yr FNMA 4.0 Feb:              101.24 +4/32 (.12 bp) (+3/32 (.09 bp) frm 9:30)

30 yr GNMA 4.5 Feb:             101.11 +3/32 (.09 bp) (+2/32 (.06 bp) frm 9:30)

15 yr GNMA 4.0 Feb:             102.14 +3/32 (.09 bp) 9+2/32 (.06 bp) frm 9:30)

Dollar/Yen:                           90.35 -0.25 yen

Dollar/Euro:                          $1.3963 +$0.0035

Gold Apr:                               $1114.80 +$9.80

Crude Oil Mar:                       $77.28 +$2.85 (refinery fire)

Goldman-Sachs

Commodity Index:                507.28 +14.05

DJIA:                                    10296.85 +111.32

NASDAQ:                              2190.06 +18.86

S&P 500:                              1103.32 +14.13