Bonds are getting hammered and it looks like 30 year fixed rate mortgages will move up to 6.75% to 7% this week. My bond positions are of course in the hammered category but I am not concerned – it is good for my equity shorts and those are far bigger, leveraged positions. Also when the stock market really dives the flight to safety will recover the bond position.

The Treasury auction was poor – only 10.1% indirect bids from foreign central banks who up to now have been the biggest buyers of Treasury debt. Foreign investors currently hold a record 80% (yes that is eight zero percent) of all Treasury debt due in three to ten years. Any statements you may hear along the lines of “all that debt, it’s not a problem, it’s just money we owe to ourselves” – remember that 80%.

No big surprise here, the trade deficit is narrowing as consumer demand falls off in the US, and the exporting countries simply don’t have the need to reinvest dollar surpluses.

The increase in mortgage rates will not be good for the property market, which isn’t exactly in good shape anyway. RealtyTrac Inc. said: “U.S. foreclosure filings surged 90 percent in May from a year earlier as more homeowners fell behind on their monthly mortgage payments. There were 176,137 notices of default, scheduled auctions and bank repossessions last month, led by California, Florida and Ohio.”

`A jump in foreclosures at a time of year that traditionally is the busiest for home sales means the slide in prices probably isn’t over,’ said James Saccacio, chief executive officer of RealtyTrac. Typically, more than half of all home sales occur in the April to June period, according to Freddie Mac, the No. 2 mortgage buyer.

`Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,” Saccacio said. That will add `to the downward pressure on home prices in many areas.’ You think? Wake me up when foreclosures reach a million a month.