Tuesday 8/26/2009

Mortgage bonds are a bit lower as stocks look to open higher, after it was
announced that President Obama has reappointed Ben Bernanke as Federal
Reserve Chairman to a second 4-year term. This looks to be a smart move as
financial markets finally appear to be stabilizing. It was a little less than a year ago
that the credit markets were in disarray and fears of financial collapse spread
worldwide. Although Mr. Bernanke has his critics, and he has probably exerted his
influence in areas far beyond those of past Fed chairs, he has many supporters that
credit him with helping the United States step towards recovery. President
Obama's reappointment of Mr. Bernanke comes amid pressure and speculation
from some Democrats, who would have rather seen current Fed member Janet
Yellen or former Fed Vice Chairman Alan Blinder. But a look back at the history
books shows that when former Fed Chairman Paul Volcker was replaced by Alan
Greenspan in 1987, the uncertainty hating stock markets sold off hard. So the
move to keep Big Ben should help keep the markets a bit more stable.
The Bond market is also a little jittery ahead of this afternoon's $42B 2-year Note
auction at 1:00pm ET.
In what appears to be a continuing positive trend, more good signs for housing
were released this morning. The Case-Shiller Home Price Index rose to a
seasonally adjusted 1.4% in June - the 2nd month in a row. Prices rose in 18 of the
20 cities used in the survey. And the index showed that prices for the 2nd quarter
rose by 2.9%, the first quarterly increase in 3 years. Prices are still down 15.4%
compared to a year ago.
While we are very pleased to see good housing numbers, we must remember
that some of the improvement may be coming from people who would have
purchased in 2010 that are moving up their buying decisions to take
advantage of lower rates and tax credits before they expire. This means that
we may actually see a little dip in the housing numbers early next year. So
the positive trend is very welcome but should be taken with a grain of salt.
It's perhaps best thought of for now as housing not getting worse, instead of
housing improving rapidily.
Consumer Confidence is set to be released at 10:00am this morning and despite
the expected improvement, consumers' confidence remains fragile amid ongoing
job losses.
With mortgage bond prices modestly lower and sitting in a range between Support
and Resistance, we can start the day floating and watch for the impact of the
treasury auction as well as stocks influence on mortgage bonds.