Bonds Hanging In Mid-Air

Yesterday, the stock market dropped sharply with its worst-ever performance on an Inauguration Day.  More often than not, the stock market has declined as a new presidential term is greeted.

What may be surprising to some is that the Bonds didn't benefit.  Trading was thin as Washington was essentially shut down and our Fed wasn't buying Bonds.  Seems everyone tuned into the Inauguration.  This thin trading exacerbates the volatility in the market. 

Today, Obama's pick for Treasury Secretary, Tim Geithner will be in the spotlight as he appears before the Senate and answer to his tax "mistakes".  However it appears this is not a deal breaker.  What's interesting is that as Treasury Secretary, he will be responsible for the IRS...yet he mishandled his taxes?  Hmmm.  Geithner (most recently president of New York Fed), will have a lot on his plate as Treasury Secretary as he defends the $700 billion bailout, convince Senate to support new fixes for the sector, and address the deficit forecast concerns. 

This morning the bulls show some muscle and the stock market grabs some gains at the start.  IBM sure helped turn things around with 4^th Quarter results that exceeded expectations and a rosy forecast for 2009 that put a smile on Wall Street.

Treasuries drop significantly for the third day in a row.  There has been a deluge of Treasury Bond supply to pay for the rescue plans and stimulus packages.  This added supply has to be absorbed by the market.  And like you learned in school...when there is more supply than meets demand, prices drop. 

Today, no economic reports are on the docket.  Mortgage Bonds are currently hanging in mid air...between a strong support level further strengthened by the important rising trend line and overhead resistance with a lot of breathing room between both.  We are currently 149 basis points worse than the best pricing of 2009.  Bonds are currently "oversold" which creates a nice opportunity for a reversal and move higher (improvement).  If you have the stomach for it, hold on...rates could improve from here.