Market Analysis

Bonds were down in early morning trading but turned positive and stayed positive for the duration of the day as the Treasury Dept's auction of $43 billion in 2 yr notes was very well bid. At the bottom of this commentary is a link to chart of the 2 Yr Treasury Note auctions held from 2000 to current.  Today's 3.23 bid/cover ratio for the 2 yr auction was the highest for a 2 yr Note auction this decade.  A 3.23 ratio means that there were $129.2 billion in bids for the $40 billion in notes.  The highest bids are the ones selected.  Stocks also ended higher with the Dow, S&P 500 and Nasdaq all hitting 1 year highs.  Analysts are attributing the climb in both bonds and stocks to money being invested from cash accounts back into both the bond and stock markets.  It is possible though that bonds have "priced in" a stock market correction so that should one really occur the actual improvement in rates may be minimal, particularly should the Federal Reserve use a stock market correction, with it's concurrent flow of funds from stocks into bonds, as an opportunity to unload some of their gigantic holdings of mortgage backed securities.

In yesterday's economic news, August's Leading Economic Index (LEI) were up .6%.  It was projected to be up .7%.  The LEI is published by The Conference Board, a non-profit business group.  It is designed to project economic activity over the next 6 months.  The LEI had falled for 20 consecutive months (from August 2007 to March 2009), the longest downtrend since the 1970s, but has been rising since April.  No major economic news was released today.

Below is a snapshot of the economic calendar for the remainder of this week:

Wednesday, Sept 23

Fed concludes two-day Federal Open Market Committee Meeting - no change is expected to the Fed Funds Rate or Discount Rate.  Investors will be anxious to see what the Fed post meeting statement says regarding how they plan to winddown their mortgage purchase program.

Treasury Dept auctions $40 billion in 5 year notes.

Thursday, Sept 24

Initial Jobless Claims for the week ended 9/19 - expected up 5,000

August Existing Home Sales - expected up 2.1%

Treasury Dept auctions $29 billion in 7 year notes.

Friday, Sept 25

August Durable Goods Orders - expect up .5% vs last month up 5.1% and excluding the transportation component expected up 1% vs last month up 1.1%.

Reuter's/University of Michigan Consumer Sentiment Index - expected at 70.2, no change from last week's 70.2.  This index reflects the results of a survey of 500 households each month on their financial conditions and attitudes about the economy.

August New Home Sales - expected up 1.6%.