The rate markets are testing key support levels; still holding but looking more vulnerable with today’s price action. Suggest locking and not floating over the weekend.
The bond and  mortgage markets started badly early this morning and didn’t let up all day. Beginning to get a little concerned that lour forecasts for 5.00% mortgage rates may not happen anytime soon. Markets were treated to comments all through the week that the recession is over; Bernanke and Warren Buffet got the ball rolling at mid-week and added more conviction that worst is behind the economy. Even though Bernanke and many others have repeatedly said growth will be slow and likely the “new normal” will keep unemployment high for the next couple of years. The question now for fixed income markets is how much more money will be pulled out of notes and bonds to find a new home in the equity markets.


Today was a mirror image of yesterday; strong price improvements on Thursday were all erased today, suggesting that the 10 yr may be getting long in the tooth at these levels. Still holding support today but with $112B of treasury auctions next week rate markets may not be able to withstand the pressure if equity markets keep running higher.

On the week; rate markets were hanging tough until Friday’s heavy selling forced rates higher on the week, the first week n the past four rate markets will lose ground. The 10 yr note yield increased 12 BP, mortgage prices on the week, 30s -10/32, FHAs -4/32, 15 yr conventionals -4/32. The mortgage market performed better than treasuries this week. The DJIA +315, NASDAQ +51, and the S&P +25 on the week.

Next week; The FOMC meeting concludes on Wednesday at 2:15 with the statement. Nothing on the economic calendar until Thursday and Friday; weekly claims, August existing hm sales, August new home sales, August durable goods orders. Treasury supply will dominate; over the past three months investors have been bidding well for treasuries at the auctions, foreign buyers continue to support the US growing budget deficits. Will the demand continue to remain strong; traders are not likely to bet on it ahead of the auctions that begin next Tuesday.

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