Wednesday, July 29, 2009

The going is likely to be a little tougher for Uncle Sam as he brings $39 billion worth of supply to the credit markets today. The Treasury Department's auction of these 5-year debt obligations will conclude at 1:00 p.m. ET.

Lackluster results from yesterday's $42 billion 2-year notes amid below-average foreign investors demand have market participants concerned that today's offering will suffer a similar fate. If Uncle Sam finds it necessary to "sweeten-the-pot" by discounting the accepted price to entice investors to cough-up the capital he is seeking -- it is highly likely mortgage interest rates will creep higher before the end of the day. From a technical perspective it appears likely that any "pot sweetening" by the government will be very limited - if it proves necessary at all. If assessments are accurate, today's 5-year note auction will likely have little direct impact on the trend trajectory of mortgage interest rates today.

The Commerce Department reported earlier this morning that new orders for durable goods (items manufactured to last three-years or more) notched their biggest decline in five months in June. Durable goods orders dropped by 2.5% last month -- marking the largest slump in this economic metric since January. The headline number was pulled lower by a steep decline in demand for transportation and communications equipment. The report was not completely bleak -- there were some bright spots in this morning's data. New orders excluding transportation rose 1.1% in June, the biggest rise since February, after climbing by 0.8% in May. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 1.4% last month after posting a 4.3% gain in May. Even though the headline number fell well below the consensus estimate for a decline of 0.6% -- the June durable goods orders report in total appears to be flashing preliminary signs the worst of the massive decline in the manufacturing sector may soon be behind us. That's good news for the economy in general - but not quite so encouraging for the prospects of notably lower mortgage interest rates.

Separately, the Mortgage Bankers of America reported their seasonally adjusted index of mortgage application activity fell 6.3% during the week ended July 24^th. That was the first decline for this index in four weeks. The drop was driven by a 10.9% slump in demand for home refinancing loans while requests for a loan to purchase a home were flat.