Mortgage Apps, Durable Goods Orders, New Home Sales

U.S. stocks pulled back a bit on Wednesday as sovereign debt worries continued after Fitch lowered Portugal’s credit rating, and warned of another to come, and the latest housing market data showed new-home sales slipped to an all-time low, for the second month in a row. An overall positive report on durable goods, although uneven with a number of components showing orders declined, wasn’t enough to offset the negatives.

Nine of the 10 major industry groups lost ground on the day, led by telecoms and consumer staples – strange for a traditional safe-haven like consumer staples to lead the declines on an overall down day for stocks, I don’t get that one. Financials were the only group to close in the black, boosted by Bank of America shares after the bank announced plans to expand in Beijing. I guess traders ignored the news that BofA will have to reduce principal values on more mortgage loans.

Treasury securities got clocked, the yield on the two-year jumped 11 basis points to 1.09% (which is hardly attractive but that’s a large one-day increase) and the 10-year yield soared 14 basis points to 3.83%. Tuesday’s $44 billion two-year auction was met by relatively weak demand, and that was followed by yesterday’s 5-year auction in which Treasury had to pay up in yield as demand was considerably weaker than prior auctions. We’ll see more than $100 billion in monthly government debt issuance until the cows come home, at some point that should cause yields to break through this very low-level range. (More on this below the jump)
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Brent Vondera, Senior Analyst