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Thursday, August 28, 2008A record auction of $32 billion in two-year notes Wednesday pushed Treasury prices higher. The two-year note's yield fell five basis points to 2.27% while the yield on the benchmark 10-year note dipped slightly, falling one basis point to 3.76%. Indirect bidders, an investor class that includes foreign central banks, bought 29.5% of the amount sold, compared with an average of 27.4% at auctions held over the past year. Foreign central banks have been reducing their holdings of agency debt in favor of Treasuries in recent weeks. Treasuries held by foreign central banks increased to a record $1.4 trillion on August 20. Two-year notes currently yield 27 basis points more than the Federal Reserve's 2% target for overnight bank lending, less than one-third the spread on June 12. The Treasury Department is scheduled to auction $22 billion of five-year notes today.
Durable goods orders unexpectedly rose in July as foreign demand for domestic goods, fueled by the weak dollar, is still helping companies weather the drop in domestic spending. Orders for goods meant to last several years increased 1.3% according to a Commerce Department report released Wednesday. Contributing to the gain in orders were increases in demand for metals, machinery, communications equipment, automobiles and aircraft. Orders excluding transportation equipment rose 0.7% after a revised 2.4% increase in June.
Mortgage loan applications rose last week from the lowest level in more than seven years, helped by an increase in purchases. The Mortgage Bankers Association's index of applications to buy or refinance a loan increased 0.5% from the prior week to 421.6. The group's purchase index rose 0.6% and the refinancing index was 0.3% higher. The average rate on 30-year fixed rate mortgage loans dropped to 6.44% last week, from 6.47% the previous week. The average rate on 15-year fixed rate loans decreased to 5.94% from 5.99%. The average rate on one-year adjustable rate loans rose to 7.15% from 7.07%, representing further indication that lenders are hesitant to write more of these loans as currently resetting adjustable rate loans are defaulting in record numbers.
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