The FOMC policy statement was about the same as the March 18th meeting; the fly for treasuries and to a lesser extent mortgages, was that the Fed did not increase the purchases of treasuries or mortgages from what it announced at the March meeting ($750B of MBSs and $300B of treasuries). And the statement did indicate that economic activity had shown some improvement since the March meeting. That has been reflected in some of the recent economic data that has hit since the March meeting, particularly increases in consumer sentiment and confidence. click to read the entire statement http://www.federalreserve.gov/newsevents/press/monetary/20090429a.htmThat the Fed deliberately refrained from keeping support at 3.00% for the 10 yr blew the yield up to 3.12% on the initial knee jerk and took mortgage prices down on the initial move 20/32 clearly demonstrates that markets were hoping and trading on the idea the Fed would send the message it will keep rates from increasing. When that wasn't there traders turned on treasuries and to a lesser extent on mortgages and rates broke out of their tight four week range on the 10. As we have been showing in the charts in the morning reports for the past month, the technicals had been bearish on the RSI and moving averages, being held in check at 3.00% area. Mortgages however are in better shape technically with investors following the Fed in MBS buying; mortgages being originated today in the TBA market are likely some of the best in years in terms of credit quality and based on very subdued appraisals. By 3:30 the 10 yield remained at 3.09%, -18/32, while mortgage prices on the day bounced back to -6/32.(see below for 4:00 levels)
Almost an after thought; the $26B 7 yr note auction was not that well received. The yield at 2.63% with the cover at 2.28 versus 2.52 at the prior auction and indirect bidders taking just 33% of it from 28.0% in March, but the participation rate still trailed the 38.7% rate seen in February. Supply will continue to press on treasuries next week with another $71B hitting in 3s, 10s and 30s ( $35B 3-year note auction next Tuesday, a $22B 10-year note auction next Wednesday, and a $14B 30-year bond auction next Thursday).
Early this morning the MBA's purchase index fell 0.6% in the April 24 week. Refinancing applications were down 22% in the week but remain very active, making up three quarters of all mortgage applications. Thanks to government buying of Treasuries and agency debt, mortgage rates are at rock bottom with 30-year fixed loans averaging 4.62% for an 11 basis point drop in the week. Housing data have been showing some life but not MBA's report.
Tomorrow weekly jobless claims at 8:30 (unch); also at 8:30 March personal income and spending (-0.2% and unch respectively); the PCE inflation +0.2%. Finally at 8:30 the employment cost index for Q1 (+0.5%). At 9:45 the Chicago purchasing mgrs index (35.0 frm 31.4 in March).
Mortgage markets continue to perform better than treasuries; the spread between the 10 yr note and mortgages had widened to about 270 basis points earlier this year and now at 165 basis points; the spread that has been typical over the years.
Foreclosure starts are continuing to rise to record highs but total delinquencies fell in March to 7.88%, a month-over-month decrease of 5.8%, according to the April 2009 LPS Mortgage Monitor from Lender Processing Services, Inc., Jacksonville, FL. The seasonal February to March decline in delinquencies in the five years from 2002 to 2007 averaged 14%, and the number of newly delinquent loans saw a greater decline in March compared to 2008.