FNMA 30-Yr 4.0%

Previous close 100.594
Opened Down 0.03bp @ 100.563

Key Economic Data:

EUR / USD 1.4405 Up 0.0123
USD / JPY 81.5940 Up 0.6548
GBP / USD 1.6489 Up 0.0014

Oil 103.36 Up 2.77
Gold 1,537.90 Up 0.60

Key Economic News:
Another Decline
Case-Shiller index falls to new low for housing downturn. Month-over-month declines smaller than in late 2010.

Key Numbers:
Case-Shiller 20-city index -0.2% in Mar (mom), vs. median forecast -0.2%

Main Points:
1. The Case-Shiller house price index fell by 0.2% mom on a seasonally adjusted basis (-0.8% unadjusted), or 3.6% yoy. The level of the index fell to a new cycle low, and now indicates a peak-to-trough decline in house prices of at least 33.1%.

2. House price trends were mixed across regions. Washington DC remained the best performer, with price gains of 1.2% mom (seasonally adjusted) or 8.1% yoy. San Francisco, Miami, Seattle and Los Angeles also saw significant month-over-month gains in prices. In contrast, prices remained quite soft in Charlotte, Minneapolis, Cleveland and Atlanta. Prices in Minneapolis were down 20% from a year earlier.

3. Despite another month-over-month decline and a new low for the index, we are cautiously optimistic about the near-term outlook for house prices. First, while prices are still falling, declines are now substantially smaller than in late 2010. For example, in the three months to October the decline in the seasonally adjusted index was an annualized 10%. In the three months to March the annualized decline was about 3%. Second, the weakness in house prices appears concentrated in distressed sales. The Core Logic house price index-which allows us to divide prices into distressed and non-distressed-shows relatively firm prices for conventional sales.
9:45: Chicago purchasing managers' index (May). Effects of auto shock. We forecast that the Chicago PMI fell to 62.0 in May from 67.6 previously, consistent with the sizable declines in the other regional manufacturing indexes. Our research finds that the Chicago index is most sensitive to changes in auto production, and so should show effects of recent cutbacks at the Japanese-brand automakers.
Median forecast (of 49): 62.0; last 67.6.
10:00: Conference Board confidence index (May): Small gain. Like the University of Michigan measure of sentiment, we expect a small increase in the Conference Board's measure of household confidence. Improving job market prospects and the decline in gas prices, in particular, should help consumer attitudes.
Median forecast (of 60): 66.5; last 65.4.

Advice:
With today's news I would expect the market to trade in a close trading range, with downside risk.

My position on MBS stays neutral.