Trading activity is thin this morning as investors await the results of this afternoon's $25 billion sale of 10-year notes by the Treasury Department.
Market participants are divided in their opinion on whether today's record setting 10-year note auction will "coattail" off of yesterday's stellar 3-year note auction and go off without a hitch. Bids for Monday's 3-year note offering from Uncle Sam were the strongest in more than twenty-years.
One group of analysts is arguing the falling dollar will lure bargain shopping foreign investors in droves to today's 10-year note sale. The opposing camp is equally convinced that now that the Fed is no longer actively adding to their fixed-income portfolio, these longer-dated securities will likely require higher yields to attract the necessary capital.
Everybody will be watching intently to see if demand steps up on its own. If so, interest rates in general -- and mortgage interest rates in particular --will likely remain little changed. On the other hand, if private demand is weak -- mortgage investors will almost certainly register their displeasure by pushing mortgage interest rates noticeably higher.
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