Monday, April 6, 2009

There is nothing on this holiday-shortened week's economic calendar that will likely drive mortgage interest rates in one direction or other leaving the trend trajectory of rates to be determined by trading action in the equity markets.
There are a number of technical reasons to believe the rally in the stock markets that began in mid-March is running out of upward momentum. If the assessment proves accurate, falling stock prices will almost certainly support steady to fractionally lower mortgage interest rates.

The Fed was in the credit markets earlier this morning to purchase $2.5 billion of Treasury obligations as part of its $300 billion effort to support the economy and keep consumer and business interest rates low. The impact of the Fed's intervention in the government debt market has waned significantly as traders have discounted the Fed's direct-purchase of Treasury debt as largely an exercise in tokenism. An increasing number of market participants view the program's initial funding level of $300 billion as nothing more than a drop-in-the-bucket compared to government's intention to borrow $2.+ trillion before the end of September.

The Treasury Department will sell $6 billion of 10-year inflation-indexed notes tomorrow, $35 billion of 3-year notes on Wednesday and $18 billion of 10-year notes on Thursday. The 10-year inflation-indexed securities and the 3-year notes will likely sell well -- but the Fed will probably have to whip out their checkbook and buy a significant portion of Thursday's 10-year note offering to keep yields - and by extension mortgage interest rates - from moving noticeably higher. The 10-year note auction sets up as this week's "wildcard" event. (The 10-year note auction will conclude at 11:30 a.m. ET on Thursday to allow auction administrators to wrap up details prior to the bond market's early close at 2:00 p.m.)