Mortgage bonds remain near unchanged holding the gains from yesterday afternoon.
We were able to close positive yesterday despite the DOW closing up 173 points. The DOW is currently down 49.
There is no data set for release today, but news that China has tightened their lending standards – for the second time in two weeks – is grabbing the market’s attention this morning.
Over and above their normal banking reserve requirements, China is now requiring their banks to set aside additional capital in reserves. This is being done in an effort to drain money from their financial system, and stave off inflation…which now stands at a overheated 4.4% and represents a 2 year high. So while US Stocks are lower this morning – as is the US Dollar – Bonds are not making any gains, due to the inflation threat in China. Why? Because the inflation threat in China will continue to be combated with further rate hikes by the People’s Bank of China…and if rates move higher abroad, global investors in search of the highest yield may find foreign Bonds increasingly more attractive.
Yesterday, the Treasury announced that it will purchase $99B in 2, 5 and 7-Year Notes during the holiday shortened week on Monday, Tuesday and Wednesday. With trading volume a little thinner due to fewer Traders working during a holiday week, and all this fresh new Bond supply coming to market – we could see the present high volatility pick up a notch further still.