This week there are no real economic reports of consequence other than weekly jobless claims on Thursday. Treasury will conduct three auctions beginning on Tuesday with $32B of 3 yr notes, Wednesday $21B of 10s and Thursday $13B of 30s. Congress is still on vacation. Leaders, though, will be talking and staking out positions for the coming battle over the debt ceiling, entitlements, and revenue enhancements, Republicans saying that increased taxes are off the table on the negotiations.
US financial markets (stocks and bonds) are due for retracements after the rapid changes over the past week. The 10 yr note and MBSs are very oversold in the near term. We expect some improvement this week but it won’t change the bearish outlook for the rate markets. The stock market is equally over-extended on its recent rally; look for some pull-back this week. As with the bond market, any retracement won’t likely change the bullish outlook for equities. The early news on Monday: Bank of America agreed to pay Fannie Mae $3.6B to resolve home-loan repurchase claims; it will also repurchase $6.75B of residential mortgages sold to Fannie Mae.