Mortgage Market Commentary

Mortgage backed securities (MBS) prices are higher (rates lower) as money flows out of the stock market and into less risky fixed-income assets, like MBS; FNMA 4.0% coupon 100.27bps, +16bps. Low interest rates and falling home prices are giving only a limited boost to home sales, according to Mortgage Banker Association weekly survey as the purchase index improved only 1.4% while mortgage rates are at rock bottom levels. Refinancing has benefited, though demand has been slowing with the index down 11.2% last week. Fewer jobs, falling home values & the biggest loss of household wealth on record has limited the consumers ability to spend, as retail sales in April dashed market expectations significantly by dropping 0.4%. March's decline was also revised lower to negative 1.3%. The decline in sales was led by falling demand for electronics, furniture, clothing & groceries. Service stations sales also fell in April, even as fuel prices climbed. The import-price index increased 1.6% in April, as oil costs rose 15.4%. Excluding oil, prices fell 0.4% to extend a long run of declines connected to the global recession. Compared with a year earlier, import prices plummeted 16.3%. U.S. export prices increased 0.5% in April, as prices for agricultural exports rose 3.6%. The import price index is the first of three inflation gauges this week; Producer prices tomorrow % Consumer prices on Friday.