Wednesday, 3/10/10 4:12 PM

I watched the paint dry and the grass grow today. It was slow and you had to watch very closely to see it; once I actually saw a blade of grass sit up and wave in the wind. There was nothing better to do today as the financial markets once again had little movement. Not much to get investors and traders motivated with no economic data and nothing of direct consequence to change the malaise. Lots of talk that China's inflation levels are increasing but we reported that yesterday; old news, but media needs something to talk about.

The $21B 10 yr note auction drew 3.735% with a 3.45 cover and an indirect take of 35.1%. The yield was well below the anticipated 3.745% to 3.755% yield, so aggressive direct bidders came in (anonymously) and took down a big chunk at 17.5%. The previous $25B 10-yr auction did not go off too well, with the 3.692% yield, a 2.67 bid-to-cover and 33.2% indirect bidder take. The previous ten 10 yr auction averages of 2.77 cover and 40.3% indirect bidders (foreign investors). The direct bidders have been in play in the past several auctions with the previous 10 yr reopening with a huge 17.3% take and last month's new offering getting a size 13%.  Direct bidders, those that buy directly from Treasury are worrisome to traders since they are anonymous and suspect to possible rapid selling; skinny is direct bidders may be hedge funds. Bottom line today; it was a solid auction.

More on Treasury today. Treasury reported the Feb budget deficit at $221B, in line with forecasts but growing like a dandelion in June. In Feb 2009, a yr ago, the monthly deficit was $194B; and in the first five months of fiscal 2010 the deficit totaled $651.6B against the first five months of 2009 at $598.9B. 2009 total deficit $1.4T, this yr should be $1.6T. Going up as Obama has tossed trillions to the economy to get it turned around, much of the money wasted by most accounts and was a lot of pork with no direct increase in jobs. The loss of 8.4 million jobs the last two years has been limiting tax revenue, while stimulus efforts such as the first-time homebuyers credit have added to expenses.

Last Friday CBO was out saying that the Obama 2011 budget proposal would create bigger annual deficits than projected. The CBO said the budget shortfall will remain above 4% of GDP for the foreseeable future while the publicly held debt will reach $20.3T, or 90% of GDP by 2020. Most economists believe debt above 3.0% of GDP can't be sustained as anything over 3.0% of GDP is more debt than the country can pay back. Taxes are going to increase; when and on whom is being debated (nothing until the elections in Nov). As it currently is being pushed, the Obama health care reform will increase taxes on many that already have insurance and down the line hit businesses. While health care reform is absolutely necessary the Obama plan is set to add huge amounts to the annual deficits after five years lapse; however, health care reform remains in limbo. Best that the whole process start from scratch and have a plan that voters actually can understand.

Tomorrow actual interesting economic data for a change; at 8:30 weekly jobless claims are expected to be down 9K with continuing claims -5K. While the headlines are important, so too is the BLS data on emergency claims, claims that continue after the initial; 27 weeks expires. Also at 8:30 the Jan trade deficit, expected at $41B, in Dec the monthly deficit was $402B.

At 1:00, the final auction this week concluding borrowing of $74B. The 30 yr auction will total $13B and will be a re-open of the 30 yr issued in Feb. So far the previous two auctions went well and although markets always sweat auctions (its a Pavlov thing), the 30 yr is also likely to be well bid.

PRICES @ 4:00 PM

10 yr note:                         99.07 -4/32 3.72% +2 BP

5 yr note:                           99.31 -6/32 2.38% +4 BP

2 Yr note:                           99.30 -2/32 0.91% +3 BP

30 yr bond:                        98.31 -4/32 4.69% +1 BP

Libor Rates:                       1 mo 0.230%; 3 mo 0.255%; 6 mo 0.394%; 1 yr 0.857%

30 yr FNMA 4.5 Apr:          101.00 unch (+3/32 (.09 bp) frm 9:30)

15 yr FNMA 4.0 Apr:          101.29 -2/32 (.06 bp) (unch frm 9:30)

30 yr GNMA 4.5 Apr:         101.20 +3/32 (.09 bp) (+6/32 (.18 bp) frm 9:30)

15 yr GNMA 4.0 Apr:         102.20 -2/32 (.06 bp) (+1/32 (.03 bp) frm 9:30)

Dollar/Yen:                        90.51 +0.57

Dollar/Euro:                       $1.3643 +$0.0046

Gold Apr:                           $1105.80 -$16.50

Crude Oil Apr:                    $81.91 +$0.42

Goldman-Sachs

Commodity Index:              527.61 +2.45

DJIA:                                10567.33 +2.95

NASDAQ:                          2358.95 +18.27

S&P 500:                          1145.61 +5.16