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Treasuries and mortgages opened weaker this morning, the stock market trade in pre-market opening also looking weak. If the stock market (DJIA) ends this week lower it will be the first time since 2002 the key index closes lower for 7 consecutive weeks. There are no economic reports today and through the week there isn't much data to look at. The week has treasury auctioning $66B of notes and bonds. OPEC will meet Wednesday with the Saudis pushing for more production, crude oil this morning trading lower on the OPEC outlook.

Bernanke is scheduled to speak tomorrow, may talk about the Fed's new economic outlook that has been lowered recently. Some talk about another QE but we don't expect the Fed will do another easing similar to QE 2 in which the Fed bought $600B of treasuries (the program will end at the end of this month). The easing move didn't come close to helping the economic recovery as recent evidence clearly shows; the Fed in our opinion is out of bullets. If there is going to be any additional help for the recovery it has to come from the fiscal side (Congress and the Administration), both of which have so far shown little understanding about what to do.

Federal Reserve Bank of Philadelphia President Charles Plosser said an exit from stimulus measures should start "long before" a recovery in the U.S. jobs market is assured. "Somewhat tighter monetary policy is possible by the end of the year," he said today at a press conference. "We will have to begin exiting from our policies long before the unemployment rate is down to what people would like to have. That's going to be a difficult decision."

Every move out of Washington since the economic decline has been mis-guided and has served to drag recovery on and on. The foremost mistake; tying the hands of FNMA and Freddie, when the economy needs help in the housing sector (one of the key reasons consumers are not supporting the economy), Congress and this Administration have yanked the GSEs back. The so-called private MBS markets have tightened credit underwriting, want to increase down payments, and lower loan limits. Every thing that has come from Washington since the sub-prime crisis has been either meaningless or has added to the problems. At a time when the government needs to be there it has been shut down. Politicians didn't heed warnings that sub-prime was headed off a cliff, can we expect them to understand what has to occur now? In total they have little understanding, as long as housing markets remain as soft as they are there is no reason to believe the economy will rebound much.

At 9:30 the DJIA opened -25, the 10 yr note -12/32 at 3.04%; mtg prices -8/32 (.25 bp) frm Friday's close.

This Week's Economic Calendar:
Tuesday;
1:00 pm $32B 3 yr note auction
3:00 pm April consumer credit (+$6.0B; this is one of our key data points)
Wednesday;
7:00 am MBA mortgage applications
1:00 pm $21B 10 yr note auction
2:00 pm Fed Beige Book
Thursday;
8:30 am weekly jobless claims (+5K to 427K; cont claims 3.688 mil frm 3.711 mil)
Apr trade balance (-$48.5B)
10:00 am Apr wholesale inventories (+0.9%)
1:00 pm $13B 30 yr bond auction
Friday;
8:30 am May import and export prices (imports -0.7%, exports +0.3%)
2:00 pm May Treasury budget (-$135B)

The bond and mortgage markets under pressure early this morning with the 10 yr note working both sides of 3.00%. Treasuries are working higher n rates with Treasury auctions beginning tomorrow. The lower rates occurring with safety buying as investors lighten up on equities. Mortgage rates working lower but last week were soft compared to the 10 yr note. Mtg markets have to contend with a softer economic outlook now, treasuries likely to out-perform MBSs this week.

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