Monday, 3/15/10 4:10 PM

It took until 3:00 this afternoon to see any improvement in mortgage prices and treasuries; until then the day was marked with a 3/32 price range for the 10 yr and mortgages in a 5/32 range (.15 bp). The equity market was lower all day but did manage to improve slightly in the last 45 minutes of trading. . Markets waiting for the policy statement from the Fed after the FOMC meeting tomorrow. Although we are not expecting a lot from the statement, the worn comment that the Fed will let interest rates low for an "extended period" is likely to be re-worked to allow the Fed more flexibility in increasing rates when necessary. That said, markets are not expecting, nor will a change in wording, increase the timing on when the Fed will act. The economy is still fragile and most all Fed officials are saying that higher rates until the economy sees job growth is highly unlikely.

There is talk today in the markets about Moody's veiled threat to downgrade US Treasury debt from AAA. Amazing how when there isn't anything else going on, markets can make mountains out of nothing. Moody's, rightfully, is only increasing rhetoric on an issue that is on everyone's' mind, that the US debt is exploding and must be ratcheted down as soon as possible. Nothing new there; the US debt is now approaching 90% of GDP growth; unless investors see actual evidence of budget restraint (an oxymoron in Congress) the cost to borrow will take all interest rates higher. As for Moody's it would be best for them to keep their mouth shut after being the fueling factor for the massive sub prime mess that about took everything down. Moody's and S&P sucked at the tit of Wall Street issuing AAA ratings on junk. Lowering US debt rating won't do much, as long as investors continue to see US Treasuries as THE risk free investment it is, who will give much credence to a rating agency that was on the leading edge of subverting credibility of rating agencies? Investors will determine the cost to the US for letting the deficits grow without the input of rating agencies; unfortunately the deficit is going to continue to increase for at least another three years.

The Senate Banking Committee, chaired by lame duck Senator Dodd, revealed the blue print for financial regulatory reform today. The plan calls for setting up a new Council called the Financial Stability Oversight Council that will act like a judge and work with existing agencies to end the too big to fail problem that the huge banks have generated. The Fed, with a two-thirds vote by a proposed Financial Stability Oversight Council, would be able to require companies to divest holdings, “but only as a last resort.” The council will consist of nine members from other regulators and be chaired by the Sec of Treasury. Dodd's plan also has his rendition of the Volcker rule that would ban banks from proprietary trading, investments in hedge funds and private equity funds. The details will now be worked out by the Committee and Senate.

The pace of permanent Home Affordable Mortgage Program loan modifications is now averaging roughly 50,000 a month with the cumbersome government program finally getting its legs. The Treasury Department reported that mortgage servicers completed 54,900 permanent HAMP modifications in February, up from 49,400 the previous month. To date, the Home Affordable Mortgage program has helped 170,200 homeowners secure a permanent modification that reduces the monthly payment on a first mortgage to 31% of income. Another 835,200 borrowers are in HAMP payment trials where their monthly mortgage payment is reduced by more than $500. (Nat'l Mtg News)

Tomorrow at 8:30; Feb housing starts and permits, starts expected -3.5% and permits down 3.2%. The Feb weather likely caused a lot of starts to be put on hold. The FOMC statement comes at 2:15 PM. 

PRICES @ 4:00 PM

10 yr note:                             99.10 +1/32 3.71% unch

5 yr note:                               99.27 unch 2.41% unch

2 Yr note:                               99.27 +1/32 0.95% -1 BP

30 yr bond:                            99.26 unch 4.63% unch

Libor Rates:                           1 mo 0.230%; 3 mo 0.257%; 6 mo 0.400%; 1 yr 0.867%

30 yr FNMA 4.5 Apr:              100.27 -1/32 (.03 bp) (-1/32 (.03 bp) frm 9:30)

15 yr FNMA 4.0 Apr:              101.26 unch (+2/32 (.06 bp) frm 9:30)

30 yr GNMA 4.5 Apr:             101.15 unch (unch frm 9:30)   

15 yr GNMA 4.0 Apr:             102.17 -1/32 (.03 bp) (+1/32 (.03 bp) frm 9:30)

Dollar/Yen:                           90.47 -0.16 yen

Dollar/Euro:                          $1.3672 -0.0013

Gold Apr:                               $1106.60 +$4.90

Crude Oil Apr:                        $79.92 -$1.32

Goldman-Sachs

Commodity Index:                516.48 -7.32

DJIA:                                     10642.15 +17.46

NASDAQ:                               2362.21 -5.45

S&P 500:                               1150.51 +0.52