Mortgage Market Update

Treasuries and mortgage markets opened better this morning in light trading ahead of this week's Treasury auctions and the FOMC meeting on Wednesday. Equity market pre-open trade were up a little, about unchanged from fair value pointing to a flat open. Crude oil continues to increase, up $1.00 at $113.30 at 9:00 am, gold also higher again today (+$10.00 at 9:00 am).

At 9:30 the DJIA opened -17, 10 yr note +2/32 and mortgage prices +4/32 (.12 bp).

At 10:00 the only data point today, March new home sales expected up 10.7%, increased 11.1% to 300K annualized and up from 270K in Feb frm 250K originally reported. Better but not much; the median sales price $213,800.00% down 4.9% frm Mar 2010, based on sales there is a 7.3 month supply down from 8.2 months in Feb.

The major focus this week is the FOMC meeting on Wednesday. Always a key focus for the financial markets, this week even more so as for the first time in history the Fed chief will hold a 45 minute press conference after the meeting. Normally the FOMC releases a short policy statement after the meeting at 2:15 pm; this meeting will conclude with the statement at 12:30 then at 2:15 Bernanke will hold his news conference allowing reporters to ask questions. The Fed is trying to increase certainty and add stability in markets removing much of the speculation about what the Fed really means. Unlikely that his press conference will add more clarity, but at least he will try.

Treasury will auction $99B of 2's, 5's and 7 yr notes Tuesday through Thursday, selling the 5 yr note sandwiched between the Fed's policy statement at 12:30 and Bernanke's press conference at 2:15 on Wednesday. Economic data has new home sales today (see above), weekly claims on Thursday along with the first look at Q1 GDP also on Thursday. This week also has a huge number of Q1 earnings reports that will set the tone for the equity markets. So far earnings overall have generally beaten Street estimates. Technically the bond and mortgage markets are looking good as inflation worries fade and the dollar declining. We don't expect much change in mortgage prices until Wednesday's FOMC meeting.

This Week's Economic Calendar:
9:00 am Case/Shiller Feb home price index (-3.2% 20 city)
10:00 am April consumer confidence index (64.4 frm 63.4 in March)
1:00 pm $35b 2 yr note auction
7:00 am weekly MBA mortgage applications
8:30 AM March durable goods orders (+1.8%, ex transportation +1.2%)
12:30 pm FOMC policy statement
1:00 pm $35B 5 yr note auction
2:15 pm Bernanke press conference
8:30 am Q1 advance GDP report (+1.7%)
weekly jobless claims (-13K to 390K, continuing claims 3.69 mil frm 3.695 mil)
10:00 am NAR pending home sales for Mar (+1.7%)
1:00 pm $29B 7 yr note auction
8:30 am March personal income and spending (income +0.4%, spending +0.5%)
Q1 employment cost index (+0.5%, Q4 +0.4%)
9:45 am Apr Chicago purchasing mgrs index (68.0 frm 70.6 in Mar)
9:55 am U. of Michigan consumer sentiment index (69.6 unch frm mid-month)

Much of the world markets are closed today, likely will influence trade in US markets today. The bond and mortgage markets sitting relatively unchanged so far this morning. Technically the bond and mortgage markets slightly bullish but any selling could change the technicals quickly. Debate continues about the value of treasuries and the present rates. Recent comments from Bill Gross at PIMCO that returns at present rates are not worth investing, while most dealers continue to prime the pump that bonds are a good investment. Generally we do not expect the bellwether 10 yr note to move above 4.00% this year, which is the general consensus. Gross's criticism of present low rates, and his comment recently that PIMCO was at one point short US rate markets upset many that said it was anti-American. "I could join the dealers and say the 10-year's not going to go to 4 percent, so what am I left with?" Gross said......."I'm left with an under-yielding, less-than-inflation security. I have better choices. As a firm we're not going to put up with it."