ADVICE: For loans being locked for 15 - 30 days, we suggest...(more)
Some slippage early this morning; the bond and mortgage markets trading slightly weaker after another attempt to break 3.10% on the 10 yr note yesterday. Yesterday the 10 yr made another attempt to push below its resistance, just couldn't make it although it did decline 2 basis points with mortgage rates unchanged on the session. Yesterday the bond market had support from continued uncertainty about Europe's debt problems in the "infamous five" countries facing potential defaults. The weaker stock market yesterday also kept safety moves into treasuries alive.

This morning the US stock market key indexes were pointing to a better open at 9:30 after the DJIA declined 131 points yesterday. At 9:00 mortgage markets were down 6/32 (.18 bp) frm yesterday's unchanged prices, the DJIA +47, the 10 yr note -6/32 at 3.15%. Crude oil at 9:00 +$2.00, gold up $7.50. At 9:30 the DJIA opened +21, the 10 yr -7/32 at 3.15% and mortgage prices down 4/32 (.12 bp) frm yesterday's close.

CNBC Fed survey out this morning; 55% of recipients said the Fed's monetary policy is too loose, most believe the Fed will not increase rates until the first Q of 2012 and by the end of 2012 the FF rate now at zero/0.25% will be .75%. The estimates for 2011 GDP growth reduced from 3.07% to 2.7%.

Do the big Wall Street firms actually have any sustainable idea about where markets are headed? Uncertainty continues to dominate the outlooks for equity markets and commodities. Commodities advanced after Goldman Sachs Group Inc. recommended buying oil and copper, reversing last month's call to sell. Energy shares led gains in the MSCI emerging index on stocks overnight on the turn-around. Goldman, which correctly advised investors to sell crude oil and copper last month before a price slump, raised its 12- month prediction for Brent crude to $130 a barrel from $107 and in turn the outlook for US oil prices has increased once again. "It is only a matter of time until inventories and OPEC spare capacity will become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies."

Britain posted its largest budget shortfall for any April since monthly records began in 1993 as tax revenue fell and spending climbed, casting doubt on whether the government can meet its deficit-reduction target this year.

At 10:00 the data today; April new home sales were expected to be unchanged, as reported sales were up 7.3% to 323K units annualized. The inventory level fell to 6.5 months supply frm 7.2 months in March; March sales were revised higher to +8.3%. Also at 10:00 another regional Fed manufacturing index, this frm the Richmond Fed, it declined to contracting at -6 frm +10 in April; that is the third regional Fed survey that has fallen in May. Better housing but much weaker Fed regional indexes have added some support in the bond market and pushed the stock indexes back. Not much enthusiasm over the home sales, as foreclosures hit the markets over the next year there is little we can build on to justify a better housing market.

At 1:00 this afternoon Treasury will auction the first of three auctions this week; $35B of 2 yr notes. Expectations are the demand will be good given the demand for safety that is dominating the recent decline in interest rates.

A couple of Fed officials out today; at 9:50 Thomas Hoenig Kansas City Fed and at 1:20 St Louis Fed James Bullard. Not likely either will add anything new.

The bond and mortgage markets continue to carry bullish technicals but unless the 10 yr note can crack 3.10% soon most of our technical work will turn bearish. If that happens we don't expect a major increase ion rates but the near term could push the 10 yr note up to 3.25% and mortgage rates up 8 to 10 basis points; in the meantime we have little reason to turn bearish---just an increase in caution at the moment.