Market Analysis

The big event for today was going to be Fed Chair Bernanke's question and answer session following his prepared testimony to the House Financial Financial Committee on “Unwinding Emergency Federal Liquidity Programs and Implications for Economic Recovery.”  However, the hearing was postponed due to snow and hasn’t been rescheduled.   The prepared statement was released this morning.   The document discusses methods the Fed plans to use to "drain hundreds of billions of dollars of reserves from the banking system quite quickly, should it choose to do so."  The Fed plans to begin testing these methods in the Spring.    Testing methods for getting ridding of mortgages is a much different direction than extending the mortgage purchase program.  Granted, the Fed can change its mind at any time if circumstance deem necessary, but it continues to appear unlikely that the Fed will extend its mortgage purchase program.  The bond market is relatively stable today.  The stock market sell off last week gave investors the jitters and they do not appear ready yet to stampede out of holding bonds.  The Dow is currently down 67 points to just below 10,000. 

In other news, yesterday's 3 Yr Treasury note auction was well bid, but resulted in a slighter higher rate than was expected.  The Treasury is auctioning $25 billion in 10 Yr notes today.   Results of these auctions will continue to be watched very carefully for signs of other governments and private investor's willingness to continue to finance the US deficit at such low interest rates.