The market has traded very poorly. Gold is trading above $600, which is indicative of the inflation outlook. Then there is fear about a strong jobs number tomorrow.
I was getting long all morning, because I can tell you the new houses on my street are not selling. A 10.5-percent drop reinforces what people are saying about the housing market slowing.
We're breaching key support levels here and that has triggered more selling. We're seeing a combination of central bank selling and portfolio managers hedging.
Five percent is looking more and more like the level where the Fed needs to stop. Anything beyond 5 and there's a real danger to over-kill the housing market, which would have a negative effect on the whole economy.
It was an average auction.
There were rumors China may revalue its currency in March. Based on that rumor, people are assuming China may buy fewer Treasuries. And then the market broke certain support levels.
The GDP data was weak, but the key is new home sales. The Fed right now has one thing to worry about, and that is the housing sector. And this number must give it a big relief.
With people convinced the Fed will go again in March, fed funds will be up at 4.75 percent. So why buy three-year paper at 4.60 percent?
The market was expecting a bigger number. Perhaps there was a bit of disappointment and so the market sold off.
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