I noted in yesterday’s rate update that public support for Greece’s austerity plan pressured rates higher because of an unwinding in the “flight-to-quality” trade.  However, this morning that trade is gaining traction due to a surprise announcement by Fitch Ratings Service in which they raised concern over Portugal and the United Kingdom’s fiscal health.  These concerns are creating demand for relatively “safe” US debt which is helping yields.

Later this morning the US Treasury will auction $40 billion in 3-year notes.  The results of this auction can shape the direction of interest rates.  Tomorrow the US Treasury will auction $21 billion in 10-year notes and on Thursday we’ll get $13 billion in 30-year bond supply.

Rates remain very attractive so we’ll maintain a locking position.

Current outlook: locking bias