In the News Today…..Newswires are cluttered this morning with talk about the expected release of the administration’s thoughts on reform of Fannie Mae and Freddie Mac. A paper is expected to be published by the Treasury on Friday, and is rumored to include three options for reform. However, it is still unclear which option that the Treasury will favor. This post should mark an official opening to the debate over the GSEs and Rep. Barney Frank is predicting a solution by the end of this year. The future of the GSEs and the mortgage market is expected to differ from the past structure, but there still remains a wide range of scenarios.
After falling for seven straight sessions, bond prices finally saw a bit of light yesterday afternoon. The bounce was fueled by strong demand for the 10-year note auction, and also the absence of anything surprising in Bernanke’s testimony. Bernanke basically reiterated his February 3rd testimony when he appeared before the House Budget Committee yesterday. Both content and tone of his remarks remained unchanged. Relating to the Fed, the biggest news of this week is that other FOMC members have spoken negatively about the Fed’s Treasury purchases, with Fisher indicating that the Fed should not do another round beyond QE2, and Lacker saying that the Fed should review and possibly scale back QE2 plans. Lacker, however, said that the program should not end yet, but rather be reviewed in the coming months. Last night, head of the NY Fed’s markets group, said that the rise in Treasury yields is a result of the changing economic outlook, not inflationary concerns. He also commented that inflationary expectations are consistent with the Fed’s mandate.
This morning, bond prices have given up some ground following the release of the weekly jobless claims data. Initial claims fell to 383k, which was the lowest level since July 2008. While the Labor Department said that the claims data is still being influenced by weather issues, the claims data continues to tick lower. The four-week average fell to 415k. Today, the Treasury will auction $16bln 30-year bonds at high noon. The auction is expected to be fair after seeing results of yesterday’s 10-year. The market failed to create an outright reversal pattern off yesterday’s rally which suggests that Bears remain in control of the larger picture. Yesterday’s rally was merely a trend pause. Any test of the 118-315 level (3.59/3.60) should give us good indication of whether the bearish trend is in fact intact. Support lies around 117-31(3.72) onto 117-22 (3.76). Our outlook suggests that mortgages will continue to trade around the current range for the time being and any rally still remains a good sell. Currently the 10yr trades 3.68%, along with mortgage backs down 6/32s.
Joe Webb
VP Trading, Pipeline Management
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900Dallas, Texas 75252
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