The Treasury Department will sell $35 billion of 5-year notes at 1:00 p.m. ET today. It will be their second of three auctions scheduled for the week.



A little more than an hour later at 2:15 p.m. ET the Federal Open Market Committee will end its two-day January meeting and release a statement on the economy and monetary policy.



The timing of the release of the Fed's post meeting statement may dampen demand for the 5-year notes. If so, it will be difficult if not impossible for mortgage interest rates to make much headway toward lower levels. In order to be supportive of the prospects for lower mortgage interest rates -- the Fed's post-meeting statement will need to sound cautious in terms of both the sustainability of recent indications of accelerating economic activity and the improving labor market story.



If the Fed leans too far in the direction of seeing the economic glass as half-empty, they will appear out-of-touch with reality and their creditability with credit market participants will slip (yet lower). On the other hand, if the Fed presents a more upbeat view of the economy and job creation together with a view that core inflation pressures will likely begin to tick higher -- mortgage investors will almost certainly feel compelled to push rates higher. The Fed's wordsmiths have their job cut out for them. If they fail today's "finesse-test" - you can bet the impact on your rate sheets won't be pretty.



The Mortgage Bankers of America have released the details of the Mortgage Application Survey for the week ended January 21st. Overall application activity dropped 12.9% on a week-over-week basis. Refinance requests declined by 15.3% while loan request for purchase money was down 8.7%. The average contract rate for 30-year fixed rate mortgages finished down 4.8%, up by 3 basis points from the prior week, down by 13 basis points from four weeks ago, and down by 22 basis points from the year ago level. According to the MBA seven out of every ten loan applications taken last week were for mortgage refinance.