Market Update

FNMA 30-YR 4.0%

Previous close 99.125
Opened Down 0.32bp @ 98.813

Key Economic Data:

EUR / USD 1.3672 Down 0.0010
USD / JPY 82.1630 Down 0.0870
GBP / USD 1.5861 Up 0.0044

OIL 86.41 Up 0.22
Gold 1,329.90 Down 2.40

Key Economic News:

The Mortgage Bankers Association's index of mortgage applications tumbled 12.9% last week, with significant losses in both the purchase loan index (-8.7%) and the refinancing index (-15.3%). At 172.3 (March 16, 1990 = 100), the purchase loan index is at one of the lowest readings of the post homebuyer rebate period.

10:00: New home sales for Dec...flat or up? Although sales of existing home rose sharply in December, we think little of this carried over into the market for new homes. Other forecasts tilt toward a modest increase, on balance.
Median forecast (of 79): +3.5%, ranging from -6.9% to +8.6%; last +5.5%.

10:00: CBO budget and economic update...The Congressional Budget Office releases its updated baseline estimates for the federal budget over the next ten fiscal years, extending the horizon to fiscal 2021. This report will incorporate the extension of the tax cuts enacted at year-end as well as other provisions of that act. It will not include proposals by either the administration or the GOP house leadership to freeze discretionary spending; instead, the CBO baseline generally assumes growth in line with inflation for these components of the budget pending enactment of such proposals.

14:15: FOMC statement...all agreed? We expect no policy changes and only a few modest upgrades to the assessment of current growth and inflation trends. We suspect that all 11 voting members will approve the statement, though dissents from President Plosser and Fisher cannot be ruled out.

Advice:

With new home sales expected to come in with a modest gain, and as long as we have no surprises from the CBO. I would expect the market to trade around the 99.000 mark.

Float with caution.

My position on MBS stays neutral today.