Tuesday, July 28, 2009

Uncle Sam is splashing around in the credit market today -- looking to borrow a record-setting $42 billion in the form of 2-year notes. The auction will conclude at 1:00 p.m. ET.

The majority of analysts (me included) believe the two-year note auction will go off without a hitch since its short-maturity makes it far less vulnerable to economic and financial market uncertainties. The fact that the entire complex of government debt obligations is offering investors the highest inflation-adjusted yields in 15-years is certainly contributing to the success of the Treasury's debt auctions as well.

News earlier this morning from the private Conference Board, a non-profit global business organization, indicating their Consumer Confidence Index slumped for the second consecutive month boosted the attractiveness of government debt obligations and mortgage-backed securities at the expense of stock valuations.

The consumer confidence index dropped to a reading of 46.6% in July from the June mark of 49.3%. The confidence gauge stood at 54.8% in May. According to a Conference Board spokesman, the decline in consumer confidence during July was caused primarily by a worsening job market. The component of the index that measures consumers' forward looking expectations fell as well - driven lower by Main Street opinions that labor market and business conditions are unlikely to change for the better in the next ninety days. Interestingly, most survey participants stated they don't believe economic conditions will worsen over the same period of time. This disconnect between the present and future expectation components of the Consumer Confidence Index is widely viewed by many as one more bit of anecdotal evidence suggesting the economy is engaged in a bottoming process as the most severe recession since the Great Depression draws to a close. I hope these early calls are right - but I personally believe it is way too early to celebrate the demise of the wicked recession witch by dancing in the street.