When will rates get better? S&P 500 is starting to fall.

Looking back to Friday, we had a nice improvement in both Treasury rates and mortgage prices after the payroll numbers indicated that labor is indeed slowing. The market believes that the Fed will lower overnight interest rates by 75 bps at the FOMC meeting next Tuesday, and some think that Fed Funds may eventually hit 2.0%. Friday's job report had very little "good" news for the economy, as NonFarm payrolls dropped for the second consecutive month, with back-month revisions downward, and most industries showed job losses.

This week we'll see the US trade deficit report tomorrow (expected -$59 billion), Thursday's weekly jobless claims (expected +4k to 355k), February Retail Sales (expected +0.8%), and then on Friday the Consumer Price Index for February (expected +0.3%) and the University of Michigan's Consumer Confidence report (expected -0.4). Currently the 10-yr is at 3.53% and mortgages are roughly unchanged from Friday.


So here's the $100 million question.... When the heck are mortgage prices going to improve? Why is the 10-yr Treasury down into the 3.5% range, yet conforming/conventional 30-yr loans, eligible for FNMA & FHLMC, back up into the 6% range? The widening that is occurring out to these levels, which statistically speaking happens once every 4,000 years, is a combination of several factors.

First, investors and money managers feel safer putting their money into Treasury securities rather than mortgage-related securities (right now, that seems like a "no brainer") Subjecting their money to the potential of borrowers defaulting and property depreciation is something that many prefer not to do. These two factors have led to losses for FNMA & FHLMC, along with others, and some investors have been selling mortgage securities in order to meet capital requirements. And selling has led to lower prices, and thus higher rates. That's it in a nut shell.

March 4 SP 500 nailed it.

Nailed support on S&P 500 from yesterday.

Great Play.

Treasuries were little changed with two-year note yields near the lowest in almost four years deterring investors and Federal Reserve officials indicating the U.S. economy remains under pressure from the housing slowdown, credit debt, bonds and bond insurers.

Fed Chairman Ben S. Bernanke urged lenders to forgive portions of mortgages for more borrowers whose home values have declined, and Vice Chairman Donald Kohn said U.S. banks face ``challenging market conditions.'' Bernanke, in remarks at a conference in Orlando, Florida, said more must be done to stem foreclosures. ``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' he said. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

In a sign the U.S. economic slowdown is spreading, the Bank of Canada cut its benchmark lending rate by a half-percentage point and signaled it will have to act again to offset a slump in exports to the U.S. The slowdown in the U.S. is beginning to have a greater effect on the rest of the world. Citigroup Inc., the biggest U.S. bank, may need additional capital from outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase.

First it will hit America/Canada, next will be Britan then Europe. Expect to see new high against the dollar across the board.

$4.20 a gallon gas could be coming for this summer.

We shall see.