May 5th Mortgage Market Wrap-up

MBS prices are up +4/32 (FNMA 30-yr 4.0 at 100.16), above the initial price level at +1/32. MBS markets stayed in a narrow range all day. The April ISM Services index came in a little higher than expected. Demand was stronger than average for the 3-yr Treasury auction, and foreign investors purchased 37% of the total. No economic data will be released tomorrow. There will be a 10-yr Treasury auction at 1:00 et.

In testimony to Congress, Fed Chief Bernanke offered his most optimistic economic outlook since the recession began. He expects economy activity to "bottom out, then to turn up later this year". He warned that the labor market may recover very slowly, but he expects that the unemployment rate will peak below 10%. According to Bernanke, the Fed is not targeting a specific interest rate with its long-term security purchases. He pointed to the decline in mortgage rates as a success, as average conforming fixed 30-year mortgage rates came down from about 6.50% in August to 4.80% now.