Commentary: The mortgage market is besieged by rather heavy wave of selling pressure that is washing through the credit markets as Uncle Sam begins to pump $66 billion of supply into a market place already suffering from a lack of demand.
Overnight news that Japan will show support for the financially hard hit euro zone by promising to buy bonds from the region eliminated a significant amount of foreign "flight-to-quality" buying that would have otherwise found its way into this week's three-part Treasury auction process.
As I mentioned yesterday Wall Street banks are cutting their holdings of Treasuries at the fastest pace since 2004. The 18 primary dealers that trade with the Federal Reserve reported that their collective holdings of government debt tumbled to a net $2.34 billion on December 29th -- from $81.3 billion on November 24th -- and that is a condition that does not particularly bode well for the likelihood these major broker/dealers will show up with big buying appetites at this week's government debt auctions.
If any one -- or combinations of the three upcoming Treasury auctions are poorly bid -- it is almost a certainty that mortgage investors will push note rates higher. Heads up.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
