Mortgage Market Commentary 05.05.09

Mortgage backed securities (MBS) prices opened strong (rates lower) but have since retreated as Fed Chief Bernanke testifies about the economic outlook before Congress's Joint Economic Committee and before the Treasury auctions $35 billion of 3yr notes later today; FNMA 4.0% coupon 100.19bps, +5bps. The Fed bought $8.5 billion in government securities yesterday, its biggest purchase since the buybacks began. The Treasury will auction $22 billion in 10yr notes tomorrow & $14 billion in 30yr bonds May 7th. Stocks around the world climbed on growing optimism the worst of the recession has passed. Banks are formulating plans for filling their capital requirements needed to weather a deeper recession as results of the stress tests are delivered. Credit markets continue to ease as the 3mo LIBOR fell below 1% for the first time; 0.99bps, down 2bps. The ISM non-manufacturing index, which makes up 90% of the economy, rose to 43.7 from 40.8 in April. The reading convincingly shows slowing rates of contraction and signals the economic slump is gradually abating. New orders were especially strong and employment also improved, pointing to lower levels of job losses.