Tuesday, February 24, 2009

Mortgage investors have grown increasingly concerned about the government's rising tide of red ink, which could ultimately lead to sharply rising mortgage interest rates. The counterbalance to these concerns is that investors the world over have few safe harbors in which to park their cash - a condition which will likely create solid demand for this week's trio of Treasury offerings. If this assessment proves accurate, look for mortgage interest rates to hover very near current levels for the week.

Right Now - Fed Chairman Bernanke has completed the prepared text portion of his semi-annual monetary policy testimony and is now heavily engaged in a question and answer session with members of the Senate Banking Committee. In his testimony he told the committee, "If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability - and only in that case, in my view - there is a reasonable prospect that the current recession will end in 2009 and 2010 will be a year of recovery."

Bernanke reiterated his pledge that the Fed will keep short-term interest rates exceptionally low for an extended period of time and renewed his commitment to use "all available tools" to stimulate and revive the financial markets. Credit market investors were slightly disappointed that Mr. Bernanke made no mention of the likelihood the Fed was seriously considering becoming a direct buyer of Treasury obligations. Market participants were not totally surprised by Bernanke's aversion to this particular discussion - since he has tip-toed away from "the Fed as a direct-buyer of Treasury debt" concept in every public address since initially raising the possibility in December.