6-9-09

Earlier this morning the Treasury Department gave 10 of the nation's biggest banks approval to pay back a combined $68 billion of taxpayer money pumped into them earlier this year to combat the credit crisis. The Treasury Department did not name the banks, but their names eventually will be published in routine Treasury reports. From a credit market perspective their names really don't matter - the fact that $68 billion is flowing back into the Treasury Department's financial war chest is viewed as reducing future borrowing needs - igniting a little round of price-improving bargain shopping in the credit markets this morning.

Many traders are milling around with their hands in their pockets as they await the results of Uncle Sam's $35 billion 3-year note auction. The auction will conclude at 1:00 p.m. ET. Most analysts are anticipating the bidding by both domestic and foreign investors to be solid. If that assessment proves accurate, this event will likely prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.

Don't expect too much improvement today - mortgage investors remain extremely skittish regarding the impact tomorrow's $19 billion 10-year note offering and Thursday's $11 billion 30-year bond auction may have on the trend trajectory of mortgage interest rates. My personal opinion is that the yield on each of these securities has been ramped-up over the past five weeks to levels that will likely draw solid participation from buyers. If so, this scenario will be supportive of steady to fractionally lower mortgage interest rates. If my assessment proves to be off-base, expect mortgage investors to express their disappointment by pushing mortgage interest rates higher and prices lower.

For what it is worth, from a technical perspective the stock markets are starting to show signs that suggest a top may be imminent. Don't jump the gun on this one - but should a sell-off in the equities develop - it will almost certainly prove to a "shot-in-the-arm" for the prospects of lower mortgage interest rates as capital flows back into the "safe-haven" of Treasuries and mortgage-back securities.