This week there isn’t much in the way of key economic reports. Over the week-end French and Greek voters sent a strong message from their citizens and to Germany that the austerity jammed down the throats of people isn’t working. Both elections removed the leaders that were forcing what many see as draconian spending cuts in spending was too much too soon. The spending cuts have already brought down leaders in Spain, Italy, Portugal and now Greece and France. The initial; reaction to the elections over the weekend are pushing US rates lower and US stock indexes down.
This week has Treasury auctioning a total of $72B of notes and bonds with 3 yr, 10 yr and 30 yr auctions beginning on Tuesday. Last week key US tock indexes were down after the strong rally over the last six weeks. Many traders are thinking a large correction is overdue with recent economic reports on manufacturing and services sectors slowing. China and Europe also seeing a decline in growth. Europe is the prime suspect as its economy is falling deeper into recession with little reason to expect much improvement. Last Friday the 10 yr note broke what we saw as strong resistance when it fell below 1.90%, from a technical perspective the 10 yr now likely to move to 1.80%; mortgage rates are also expected to decline further. Interest rates are now at levels that since last September have not been able to sustain them.