News for March 11th 2009

Mortgage Market Minute: MBS have opened slightly stronger with the FNMA 4.5% flat at 100.66, the 5.0% up +.06 to 102.00 and the 5.5% up +.09 to 102.72. Treasuries have sunk on strong supply, with the 10-year down -2/32 to 97-24/32, with the yield at 3.01%, up +0.01%. We saw some asset reallocation yesterday with stocks setting a record gain, the best day of the year, and that may continue today as the market for equities continues to post gains this morning. Yesterday’s record-setting auction of $34B in 3-year notes saw healthy demand, according to the Treasury Department. Today we get a $18B auction of 10-year notes, and Thursday we’ll see a sale of $11B in 30-year notes. Bondholders may also be responding to the Bernanke's remarks that he is more concerned about inflation than deflation, despite fears from economists about deflation driven by poor global demand and massive job losses. Perhaps that has something to do with the government’s plans to issue $4T in new debt over the next two years to pay for stimulus and bailout packages. Weekly mortgage apps increase, rates down nearly 20bps.Weekly mortgage applications rose by +11.3% in the week ending March 6, compared to the previous week’s -12.6% decline, according to the Mortgage Bankers' Association (MBA) today. The fixed-rate mortgages applications rose by +11.3%, after a decline of -12.9% in the previous week. ARM applications increased by +14.4% compared to an increase of +2.7% in the prior week. The average loan size was $220,400, compared to previous week's $222,500. The average interest rate on a 30-year fixed fell from 5.14% to 4.96%.Stocks jump on welcome profit news from Citi.Pacific Investment Management Co. (Pimco) which runs the world’s biggest bond fund, warned that inflation will take the stage in the near future. Pimco joined investors Warren Buffett and Marc Faber in its recent comments on the topic, which is a warning bell for Treasury investors. Pimco said that the government’s spending efforts will increase costs for goods and services as soon as 2010, Pimco said in a report today on its Web site. Delays in commodity production will force prices higher in the next phase of economic activity, as global growth begins to resume. Pimco is among a growing list of investors who are warning that programs to counter the U.S. slump will increase consumer prices as the economy starts to revive. Investor Jim Rogers, author of the books “Hot Commodities” and “Adventure Capitalist,” said this week U.S. policies will hurt conventional Treasuries, those that don’t offer inflation protection. Mortgage-backed securities prices tend to follow those of Treasuries, and mortgage rates move inversely with MBS prices. On today’s date: March 11…1918: Save the Redwoods League founded1974: Mount Etna in Sicily erupted1982: Menachem Begin and Anwar Sadat sign peace treaty in Washington D.C.1997: Ashes of Star Trek creator, Gene Roddenberry are launched into space1997: Beatle McCartney knighted Sir Paul by Queen