Sept 22. New dollar low
2 year auction today. FOMC result tomorrow.
Tens rallied early then failed Monday on extremely light volume. The rally coincided with Treasury’s QE purchase of $4B 5 years, (for which $15B was submitted). Clear some paper off the books to be replaced during this week’s auctions. In any event, tens are still flirting with 3.5% but remain below, closing 3.485% yesterday.
–The eurodollar curve was steeper, with red/gold pack spread up a couple of basis pts; same with 2/10. Strength was in the near contracts, where EDZ rebounded 3 bps to 99.545. Two-yr treasury yield remains just under 1%.
–Dollar was stronger first thing yesterday morning but that move reversed with EUR/USD currently making a new high and gold significantly stronger once again. The flood of dollars is tending to prop up asset prices for now, but should lead to higher long term rates, especially as QE winds down. I think I saw a line by the head of Wells Fargo saying he doesn’t want to hold 30 year fixed mortgages at this (low) rate. Instead banks happily pass that paper right through to the taxpayer.
