This Week
Treasury will auction $69B of notes and bonds beginning Tuesday through Thursday. Ben Bernanke is scheduled to speak on Friday in Chicago. Some other Fed officials will also be speaking through the week. The interest will likely focus on last Friday’s surprisingly strong April employment report that sent stocks higher and increased the yield on the 10-year and mortgage markets; the 10-year had one of the strongest increase in rates in one day for a number of years—from 1.63% to 1.74%—and mortgage rates up about six basis points in rate. With very little economic data this week, markets likely will be looking for any comments and news out of Europe and China.
The strong selling last Friday erased all the improvement in rates over the previous three weeks in a matter of three hours. It is going to take a few days this week for markets to settle down; however, the swiftness and depth of the selling on Friday is somewhat a concern that possibly the bond market had become too bullish. Technically, Friday’s selling did do damage to the near term outlook. The 10 is now trading above its 20-day average and our momentum oscillators, after holding positive for almost six weeks, have moved back to neutral; not bearish but lost all the bullish momentum. Friday’s close at 1.74% provides chart support for the 10 at 1.75%. Monday should start generally flat with no news, any additional selling is going to further damage the current bullish view.