The going is likely to be a little tougher for Uncle Sam as he brings $39 billion worth of supply to the credit markets today.  The Treasury Department's auction of these 5-year debt obligations will conclude at 1:00 p.m. ET. 

Lackluster results from yesterday's $42 billion 2-year notes amid below-average foreign investors demand have market participants concerned that today's offering will suffer a similar fate.  If Uncle Sam finds it necessary to "sweeten-the-pot" by discounting the accepted price to entice investors to cough-up the capital he is seeking -- it is highly likely mortgage interest rates will creep higher before the end of the day.   From a technical perspective it appears likely that any "pot sweetening" by the government will be very limited - if it proves necessary at all.  If my assessment is accurate, today's 5-year note auction will likely have little direct impact on the trend trajectory of mortgage interest rates today.

The Commerce Department reported earlier this morning that new orders for durable goods (items manufactured to last three-years or more) notched their biggest decline in five months in June.   Durable goods orders dropped by 2.5% last month -- marking the largest slump in this economic metric since January.  The headline number was pulled lower by a steep decline in demand for transportation and communications equipment.  The report was not completely bleak -- there were some bright spots in this morning's data.  New orders excluding transportation rose 1.1% in June, the biggest rise since February, after climbing by 0.8% in May.  Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 1.4% last month after posting a 4.3% gain in May.  Even though the headline number fell well below the consensus estimate for a decline of 0.6% -- the June durable goods orders report in total appears to be flashing preliminary signs the worst of the massive decline in the manufacturing sector may soon be behind us.  That's good news for the economy in general - but not quite so encouraging for the prospects of notably lower mortgage interest rates.

Separately, the Mortgage Bankers of America reported their seasonally adjusted index of mortgage application activity fell 6.3% during the week ended July 24^th.  That was the first decline for this index in four weeks.  The drop was driven by a 10.9% slump in demand for home refinancing loans while requests for a loan to purchase a home were flat.      

Today's conforming 30 year fixed rate is at 5.25%.

Uncle Sam is splashing around in the credit market today -- looking to borrow a record-setting $42 billion in the form of 2-year notes.  The auction will conclude at 1:00 p.m. ET. 

The majority of analysts (me included) believe the two-year note auction will go off without a hitch since its short-maturity makes it far less vulnerable to economic and financial market uncertainties.  The fact that the entire complex of government debt obligations is offering investors the highest inflation-adjusted yields in 15-years is certainly contributing to the success of the Treasury's debt auctions as well.

News earlier this morning from the private Conference Board, a non-profit global business organization, indicating their Consumer Confidence Index slumped for the second consecutive month boosted the attractiveness of government debt obligations and mortgage-backed securities at the expense of stock valuations. 

The consumer confidence index dropped to a reading of 46.6% in July from the June mark of 49.3%.  The confidence gauge stood at 54.8% in May.  According to a Conference Board spokesman, the decline in consumer confidence during July was caused primarily by a worsening job market.  The component of the index that measures consumers' forward looking expectations fell as well - driven lower by Main Street opinions that labor market and business conditions are unlikely to change for the better in the next ninety days.  Interestingly, most survey participants stated they don't believe economic conditions will worsen over the same period of time.  This disconnect between the present and future expectation components of the Consumer Confidence Index is widely viewed by many as one more bit of anecdotal evidence suggesting the economy is engaged in a bottoming process as the most severe recession since the Great Depression draws to a close.  I hope these early calls are right - but I personally believe it is way too early to celebrate the demise of the wicked recession witch by dancing in the street.

Today's conforming 30 year fixed rate is at 5.25%

Mortgage investors have absolutely no incentive to step in front of the government supply train coming down the tracks this week. 

Uncle Sam will be in the credit markets every day through Thursday looking to borrow a record setting $115 billion.  The first car load of supply arrives today in the form of $6 billion of 20-year inflation-indexed securities, followed by Tuesday's $42 billion of 2-year notes, $39 billion of 5-year notes on Wednesday and $28 billion of 7-year notes on Thursday. 

Most investors will likely choose to stand well back from the tracks for fear that the massive weight of government debt supply combined with signs of economic recovery followed by an attendant improvement in stock prices could cause a major derailment in the credit markets violent enough to push mortgage interest rates notably higher. 

It is worth noting that overseas investors, including foreign central banks, have been strong participants at this year's Treasury auctions - and there is little reason to believe their participation levels will be notably worse this time around.  Even so, look for mortgage investors to be very cautious with their pricing strategies until there is clear evidence demand for Uncle Sam's debt offerings has not waned.

This morning's stronger-than-expected June New Home Sales numbers certainly did nothing to brighten the mood in the mortgage market.  According to Commerce Department figures new home sales climbed 11.0% on a month-over-month basis in June.  The inventory level of new homes on the market has now fallen to its lowest levels since February 1998.  While the data continues to point to a housing sector attempting to put in a bottom -- few analysts are willing to declare the end of the worst decline in new home sales in decades.  The "all clear" signal will only be given once sale prices begin to trend higher - and that was clearly not the case in June -- as the median new home sales price fell 5.8% from the month earlier mark.

Today's conforming 30 year fixed mortgage is at 5.375%.

The mortgage market was staggered a bit by the Treasury Department's late morning announcement regarding the total size of next week's three-part borrowing spree.   Uncle Sam will be in the credit market looking to borrow a record setting $109 billion in the form of 2-, 3- and 7-year notes.  Next Tuesday investors will be asked to absorb $42 billion of 2-year notes -- followed by $39 billion of 5-year notes on Wednesday -- and $28 billion of 7-year notes on Thursday.  This massive amount of incoming supply has investors scrambling to make room in their portfolios - and it is that activity that is putting the lion's share of upward pressure on mortgage interest rates today.

In a separate report the National Association of Realtors said sales on existing homes rose 3.6% in June.  The NAR said it was the first time the industry had experienced three consecutive months of gain since early 2004 - raising hopes among some observers that a bottom in the battered housing sector may be at hand.  Other components of the report showed that inventory levels declined and even though prices fell, the declined was at a less steep pace.  I don't want to rain on anybody's parade - but I find it hard to image much of a sustained upward trend developing in the housing sector -- without a corresponding improvement in labor market conditions.  Until the job picture brightens significantly -- it is highly likely the large part of the recent improved sales pace for housing is more of a function of perspective borrowers' interest-rate driven sensitivities, strong seller concessions and selective bargain shopping rather than the dawn of a new "boomlet" in terms of consumer housing demand.   Judging by the very mild response today's stronger-than-expected existing home sales numbers drew from mortgage investors - a large number of traders see little reason to be overly concerned by the current news coming from the housing sector.

As expected, mortgage investors completely shrugged off this morning's 30,000 surge in the number of workers standing in line to file for first-time jobless benefits during the week ended July 17^th.   Market participants are aware that seasonal adjustments and major employment shifts in the auto sector have essentially rendered these weekly reports useless in terms of projecting the real underlying condition of the labor market.  These big seasonal adjustment factors should fade from the data within the next two or three weeks.

Today's conforming 30 year fixed rate is at 5.25%.

Second verse ... same as the first.

Fed Chairman Bernanke told mortgage investors just what they wanted to hear yesterday when he promised the central bank has the will and the tools necessary to guide the economy out of recession without spurring inflation.  He made those reassuring remarks during his semi-annual monetary policy testimony before the House Financial Services Committee.

Mr. Bernanke is making an encore appearance this morning before the Senate Banking Committee where he will read yesterday's prepared text testimony verbatim into the congressional record for the second time. 

He will once again be grilled by lawmakers on everything from his views on President Obama's healthcare plan, to unemployment, to what impact, if any, he thinks the birthrate of coyotes in New Mexico will likely have on the future level of short-term interest rates (I obviously made that last part up - but it is my tongue-in-cheek attempt to highlight how poorly versed some committee members truly are on topics related to the economy and interest rate movement).  There is little reason to expect the Fed Chairman will fail to handle every question, no matter how relevant or ridiculous, as deftly as he did yesterday during his appearance before the members of the House committee.  Mr. Bernanke will simply reinforce his position that while the Fed is keenly aware of the potential inflation threat down the road - the central banks has the tools to control that threat - though it is highly unlikely it will have to use any of the inflation fighting options at its disposal anytime soon.  If this assessment proves accurate, this event will have little, if any discernable impact on the direction of mortgage interest rates today. 

Today's conforming 30 year fixed rate is at 5.125%.

Well done Mr. Bernanke. 

Mission accomplished - you brought congressional members up-to-speed on current monetary policy, you adequately answered questions regarding the mechanisms available to recover the enormous amount of stimulus that has been injected into the economy without spawning massive amounts of inflation, and you withstood the badgering of a few less-than-informed legislative hacks.  Had you failed to complete your tasks today so masterfully - the credit markets would now likely be engaged in a full-out, fear-driven rout.  

It was almost possible to hear the collective sigh-of-relief from mortgage investors as Chairman Bernanke told members of the House Financial Services Committee that the weak economy will warrant exceptionally easy monetary policy (low interest rates) "for an extended period of time."  There was nothing in Mr. Bernanke's prepared text testimony -- or in his responses during the question-and-answer session that followed his formal comments -- that caused investors to believe the central bank was anxious to remove excess stimulus from the system. 

Credit market participants in general, and mortgage investors specifically, were soothed by the Fed Chairman's statement that assets on the Fed's balance sheet "may remain very large for some time" - an indication the Fed has no immediate plans to begin off-loading their massive mortgage-backed security position.   Some analysts are still suggesting the Fed will ultimately announce their intention to hold their entire $1.2+ trillion residential mortgage portfolio to maturity - but I strongly suspect that will prove to be little more than an exercise in wishful thinking.   At some point in the future the Fed will almost certainly become a major seller of mortgage-backed securities as they methodically begin to unwind the various elements of their "quantitative easing" programs - but that event is unlikely to take form this year.

Today's conforming 30 year fixed rate is at 5.25%.

This morning's release of June's leading economic indicators put mortgage investors a little on the defensive as the day began. The index, designed to project economic trends six to nine months ahead, rose 0.7% last month.  Most economists had anticipated a positive reading in the neighborhood of 0.5%.  The index value for May was revised to reflect a 1.3% gain versus the 1.2% improvement initially reported.  The leading economic indicators have now posted three consecutive monthly gains. If this trend continues, although large job losses will continue to be part of the landscape, we will almost certainly see a slow improvement in overall economic growth this fall.   Today's surge in the leading economic indicators was broadly anticipated - and therefore its impact on the current level of mortgage interest rates was barely discernable.

Mortgage investors will be keenly interested in what Fed Chairman Ben Bernanke has to say about the state of the economy when he goes to Capitol Hill tomorrow and Wednesday to present his semiannual monetary policy testimony.  Mr. Bernanke is going to face stiff questioning from members of the House Financial Services Committee and the members of Senate Banking Committee. 

For mortgage investors, the primary focus will be on what Bernanke has to say about future "quantitative easing" efforts directed specifically at the mortgage market.  Mr. Bernanke will likely tell Congress the Fed has no plans at this time to expand their $1.25 trillion direct mortgage-backed security purchase program.  Not only will he indicate there are no plans to "up-the-ante" - he will likely inform congressional leaders that Fed staffers are busy modeling various methods the central bank might use to "unwind" its large mortgage portfolio in an effort to shrink their overall balance sheet and return to normal operations. 

The Chairman will have to tread lightly here.  If mortgage investors were to get the impression the Fed intends to morph from a major buyer of mortgage-backed securities (buying more than 80% of all issues so far this year) to a steady seller of those same securities -- the upward pressure on mortgage interest rates will be significant.  The probabilities are high that Mr. Bernanke will simply say a number of options are under consideration - and significant additional study will be necessary before action is taken.  He will likely stress that the economy in general, and the housing sector specifically, are still too weak to withstand higher borrowing costs at this time.   If this assessment proves accurate, mortgage interest rates will likely trade within a very narrow range of their current levels.

Look for the majority of the "question-and-answer" period that will follow Mr. Bernanke's prepared text testimony to be taken up by committee members howling about the Fed's latest updated economic projections.  Even though the figures show the current recession won't likely be as deep as feared earlier in 2009, and the recovery next year may actually be stronger than expected, Fed research shows unemployment has the potential to top the psychologically significant 10% mark before the year is over, with little additional improvement anticipated in 2010.  It will be the labor story that congressional delegates will focus on - and not particularly for the altruistic reason you might initially expect.  Just so you can put all the chatter in perspective - know that the entire House of Representatives and one-third of the Senate faces reelection next year.  You can bet lawmakers are well aware that unemployment breeds angry voters -- so the congressional squawking and blame-laying surrounding the employment issue, especially when the media focus is highest, will likely be deafening.   

Today's conforming 30 year fixed rate is at 5.375%.

It is another lethargic, thinly traded day in the mortgage market.  Surprising strength in this morning's June housing starts and building permits report was enough to give the sellers the edge as the day gets underway. 

The Commerce Department said housing starts climbed 3.6% last month - driven higher by a solid 14.4% gain in single-family home construction with more modest gains in the multi-family category.  The June gain in single-family home building is the largest monthly advance since December 2004 and the first time since February-March 2007 that single-family starts posted back-to-back monthly growth.   June permits, an indicator of builder confidence, leapt 8.7% higher.

Most investors appear to be taking the June Housing Start and Building Permit report with the proverbial "grain-of-salt."  While the latest data from the housing sector is encouraging - it is probably premature to declare a bottom for home builders has been established.  This data series is subject to large and frequent revisions.  Additionally, some of the recent surge in homebuilding may be a timing "thing" - builders racing to get pre-sold units on the ground before the December 1^st expiration of the federal homebuyer tax credit.

Looking ahead to next week, the economic calendar offers little in the way of data that will likely influence the direction of mortgage interest rates one way or the other.  Monday's Leading Economic Indicators report (10:00 a.m. ET) will likely draw little more than a disinterested yawn from market participants.  Thursday's (8:30 a.m. ET) initial jobless claims data will probably be heavily discounted due to distortions created by the bankruptcy of major participants in the auto and related industries.   The week will round out with the release of the June Existing Home Sales data on Thursday (10:00 a.m. ET).  The June New Home Sales report will be released on the following Monday (10:00 a.m. ET).  Both measures of home sales are expected to show some modest improvement - a condition that is already priced into the mortgage market.

The "wild card" of the week will be Fed Chairman Ben Bernanke's semiannual monetary policy testimony before the House Financial Services Committee on Tuesday (10:00 a.m. ET) and an encore performance before the Senate Banking committee on Wednesday (10:00 a.m. ET).   

If Mr. Bernanke talks of "bottoms" and the declining need for additional economic stimulus from Congress -- and/or reductions in "quantitative-easing" efforts by the Fed -- expect mortgage interest rates to edge fractionally higher.  If, on the other hand, the Fed Chairman expresses concerns about a protracted or "double-dip" recession with the likelihood of joblessness exceeding 10% of the available workforce for an extended period of time -- expect capital to flow from riskier asset classes into the relative safe haven of Treasury obligations and mortgage-backed securities.  Such a scenario, should it develop, will almost certainly be supportive of steady to perhaps fractionally lower mortgage interest rates.

Today's conforming 30 year fixed rate is at 5.375%.

The mortgage market is finding some interest rate friendly support this morning from news commercial lender CIT Group said talks with the government regarding a possible federal bailout have ended unsuccessfully. 

The likelihood of another headline bank failure sent many stock investors scurrying for the relative safety of the Treasury and mortgage-backed securities markets.  The fact that the government walked away from CIT's request for aid suggests officials believe the financial system is now strong enough to withstand the bankruptcy of not only CIT Group - but the "ripple-effect" financial failures that will occur in both the banking and business sectors. 

Keep your fingers crossed Treasury Secretary Geithner, his bureaucratic entourage and the Obama administration in general are proven right on this one.  If the financial system were to lock-up again following a notable bank failure -- the remedies would likely be more painful this time around.  Sure, against such a backdrop mortgage interest rates should move notably lower - but the law of unintended consequences would be extremely difficult to avoid.  Borrowers need the confidence and the motivation - not to mention the necessary qualifying income - before ever deciding to cast a shadow in doorway of a mortgage originator.  Another major meltdown in the financial system would likely generate such high levels of domestic -- as well as global economic dislocations -- lower mortgage interest rates on your rate sheets would probably have little, if any real relevance in terms of sharply improved loan demand. 

The Labor Department reported this morning the number of workers filing first-time claims for jobless benefits fell sharply last week -- to the lowest level since January.  Initial jobless claims plummeted by 47,000 during the week ended July 11^th. 

Normally such a big improvement in the labor sector would result in a sell-off in the mortgage market.  This time around mortgage investors completely shrugged the number off.  A Labor Department spokesman said there were far fewer layoffs than anticipated based on past experience in the automotive sector and elsewhere in manufacturing which accounted for the large drop.  July is typically when the auto industry temporarily shuts plants for new model year retooling.  The bankruptcy filing for both Chrysler and General Motors earlier this year pushed forward some of these shutdowns - putting autoworkers on the jobless rolls sooner than in previous summers.  This was the second week in a row that seasonal factors had affected the data and the official said this data distortion would likely continue through the end of the month of July.

For the balance of the week look for mortgage interest rates to take their directional cues from trading action in the stock markets.  Strongly higher stock prices will tend to drag mortgage interest rates higher - while relatively steady to lower stock prices will have a propensity to support steady to fractionally lower mortgage rates.

Today's conforming 30 year fixed rate is at 5.375%.

It is another "dog day" in the mortgage market - featuring thin, listless trading activity.   Mortgage interest rates are drifting incrementally higher, driven by slightly stronger-than-expected economic news and improved buying interests in the stock markets.

The mortgage market staggered out of the gate this morning when the Labor Department reported consumer prices rose at a slightly faster-than-expected 0.7% pace in June, although most of the increase was due to soaring gasoline prices. The core measure of consumer inflation remained relatively tame.  Some mortgage investors were unnerved when the Labor Department pointed out the June increase in the overall consumer price index was the largest since July 2008.  If these same nervous-ninnies would have taken the time to read just a little bit further they would have been largely comforted by the fact that most of the headline gain was created by a 17.3% surge in energy prices - the sharpest month-over-month gain since September 2005.  (As I write, gasoline pump prices are roughly 10% lower than the June highs.) Compared to the same period last year, consumer prices fell 1.4%, their biggest year-over-year decline since January 1950 - when prices fell 2.1% y-o-y.  Just for the record, pump prices are currently 34.6% lower than they were in June of last year.    

The more important core consumer price index, a measure that strips out the volatile food and energy components, rose 0.2% in June, slightly more than the 0.1% gain most analysts were expecting.  Core prices compared with a year ago rose 1.7%, the smallest year-over-year gain on record since a matching gain in January. 

The "so what" factor behind all this economic mumbo-jumbo is significant - the modest year-over-year gain in the core rate of consumer inflation clearly shows that last year's deflation fears should now be completely over - and there is little chance the economy will overheat in the coming months, especially with consumers likely to remain very frugal, spending only on household essentials.  You can "take-it-to-the-bank" that today's sell-off in the mortgage market is probably not being driven by concerns the inflation beast will soon be waking from its slumber and raising its ugly head.

Separately this morning, the Federal Reserve reported industrial production fell in June at the slowest pace in eight months, adding to signs the worst of recession is probably behind us.  The 0.4% decrease in output at factories, mines, and utilities was smaller than forecast -- and followed a 1.2% drop in May.  Capacity Utilization, which measures the proportion of plants in use, dropped to a new record low of 68.0%.  That's another bit of good news on the inflationary front - low utilization rates reduce or eliminate the risk of bottlenecks developing in the production cycle - a condition that many times forces prices of manufactured goods higher.

Diane Swonk, chief economist at Mesirow Financial summed up the current macro-economic environment best when she said, "What we're seeing is the absence of negatives rather than the emergence of positives."  In my judgment it is the growing "absence of negatives" that is inducing an increasing number of mortgage investors to take their profits off-of-the-table and move into a defensive position with respect to their pipeline risks as they wait to see if the current "green shots" developing in the economy will grow or fade in the heat of the summer.

Today's conforming 30 year fixed rate is at 5.375%

The mortgage market "took-one-on-the-chin" this morning as a surge in auto and gasoline sales during the month of June boosted retailers' performance beyond expectations -- while a measure of inflation soared by twice as much as projected -- bolstering hopes the economy is finally beginning a modest recovery. 

The Commerce Department said sales at U.S. retailers rose 0.6% from month earlier levels - well ahead of market expectations for a sales gain of 0.4%.  A separate report from the Labor Department showed producer prices jumped 1.8% last month - double the projected gain of 0.9%. 

The initial swoon in the mortgage market was muted a bit by the detail contained in each these reports. 

Drilling down further into the data investors discovered that excluding autos and parts, which collectively recorded a 2.3% gain, "core" retail sales were up a modest 0.3% last month, short of the consensus estimate calling for a gain of 0.5%.  Excluding both autos and gasoline, sales were down 0.2% -- marking the fourth consecutive decline for this particular economic metric.  The bottom line here is that retail sales are trending about flat - and in this case flat is an improvement from the steady month-over-month declines of the second half of last year.  Consumers will likely remain very conservative with their spending in the face of weak labor dynamics and dramatically reduced access to credit -- so further gains for this measure of economic activity will likely remain muted in coming months. 

The June producer price index -- an index which measures prices received by farms, factories and refineries -- recorded it steepest monthly gain since November 2007, driven by sharply higher gasoline prices during the month. In this case, stripping out the more volatile food and energy prices didn't help much.  The so called core produce price index posted a gain of 0.5% -- a value notably higher that the 0.1% gain most market participants were expecting.   

The statistical correlation between today's Producer Price Index and tomorrow's Consumer Price Index are not as tight as you might assume - but it is close enough to make mortgage investors a bit more edgy than normal - a condition that will make it difficult, if not impossible for mortgage interest rates to move to notably lower levels today.

Today's conforming 30 year fixed rate is at 5.25%.

Mortgage investors are squaring up positions and otherwise attempting to look busy as they await the release of the pivotal June retail sales report tomorrow morning at 8:30 a.m. ET. 

The expected 0.4% gain in the headline sales figure will likely be largely discounted as a function of volatility related to a temporary price surge at the pump.  The real catalyst for a potential change of direction for mortgage interest rates will be the component of the report that excludes auto sales.  

At this juncture, the weekly retail sales data seems to be indicating that while the consumer is active - most purchases are being made on heavily discounted staples - rather than on higher-end discretionary items.  Against this backdrop it seems highly unlikely the American consumer will have shrugged off the "fear-factor" attached to the weakest labor market since World War II -- to return to living beyond their means.

The majority of market participants have currently "priced-in" expectations for the core retail sales figure (ex. auto) to show a gain of 0.5%.  If the actual number matches or falls below this threshold -- the mortgage market will likely benefit from a "flight-to-quality" buying spree as capital from the stock markets flows back into the relative safe haven of Treasury obligations and mortgage-backed securities.  If such a condition were to develop -- it should prove supportive of steady to perhaps fractionally lower mortgage interest rates.

There are, of course, those who suggest the ex. auto component of the June retail sales report will exceed the market's current expected threshold for a gain of 0.5%.  If this event were to occur, the stock market would likely rally sharply in anticipation of accelerating economic growth in the second-half of the year.  A stock market rally will almost certainly drag mortgage interest rates higher as well.  As I write, this potential outcome is viewed by most investors as unlikely.

Today's conforming 30 year fixed rate is at 5.125%.

Thin summer trading conditions, uncertainty about the impact (or lack thereof) the government's current stimulus initiatives will have on the forward looking economic picture together with lame activity levels in the stock market are all combining to support steady to fractionally lower mortgage interest rates this morning.  

The trajectory of mortgage interest rates to lower levels is heavily reliant on a steady diet of "bad" economic news.  Next week's schedule of government reports does not appear to offer much that will upset the steady to fractionally lower mortgage interest rate applecart. 

Tuesday's 8:30 a.m. ET release of the June Producer Price Index figures is expected to show a rather "hot" headline increase of 0.9% -- but most of the upward surge is likely a function of temporarily higher gasoline prices.  The core Producer Price Index, a value that excludes the more volatile food and energy components, is expected to show a rather benign 0.1% increase in the measure of prices paid at the factory gate. 

Concurrent with the release of the May Producer Price Index -- the Commerce Department will provide a read on last month's Retail Sales activity.  The consensus estimate among economists indicates a lukewarm 0.4% gain for both the headline and ex. auto component of this data series.

Wednesday's 8:30 a.m. ET release of the June Consumer Price Index is expected to parallel the earlier Producer Price Index figures.  Headline consumer prices likely climbed 0.6% last month - driven by higher prices at the pump.  Excluding the more volatile food and energy components, the so called "core" consumer price index is expected to post a very modest 0.1% gain. 

Thursday's 8:30 a.m. ET release of the weekly initial jobless claims figures and Friday's 8:30 a.m. ET release of the June Housing Starts and Building Permit figures will round out the week's economic data offerings.   Claims for first-time jobless benefits are expected to have grown by 15,000 during the week ended July 11^th -- while the pace of both housing starts and building permits probably remain little changed from the prior month's levels.

If next week's economic data matches or closely approximates the projected values -- they are almost certain to produce little, if any negative impact on the current level of mortgage interest rates. 

Today's conforming 30 year fixed rate is at 5.125%.

Mortgage interest rates got a nice little nudge to lower levels following yesterday's solid 10-year Treasury auction.  The Treasury Department will wrap-up this week's four-part auction schedule at 1:00 p.m. ET this afternoon with the sale of $11 billion of 30-year bonds. 

Trading action in the mortgage market is thin with sellers holding a slight edge over buyers.  There is some rather significant head-scratching going on as investors attempt to decipher the mixed message in this morning's weekly initial jobless claims report.  The Labor Department reported 52,000 fewer workers filed for first-time jobless benefits than the prior week - marking the best one-week performance in this economic statistic since January.   The 4-week moving average of initial weekly jobless claims, a measure closely watched because it tends to iron out week-over-week volatility, declined by 10,000 - the best weekly performance for the economic metric since February. The fly-in-the-ointment that prevented a sharper rise in mortgage interest rates was found in the component of the report that the number of people who continued to collect jobless aid after an initial week of benefits hit another new record into the week of June 27^th, signaling the employment picture remains bleak.  Until/unless a sustained improvement in the nation's labor picture develops mortgage interest rates will likely remain steady to perhaps fractionally lower than current levels.

The level of mortgage interest rates will also be influenced over the course of the next two days by trading action in the stock markets.  As I have mentioned all week in this space -- I see reasons to believe the Dow will find a bottom from which to launch a counter-trend rally before the market close on Friday afternoon.  In my judgment it is worth noting that yesterday the Dow set an intra-day low of 8087 -- before staging an almost 100 basis point rally to close at 8178.  If my assessment proves accurate - and admittedly the jury is still out on this one -- rising stock values will tend to produce modest to strong upward pressure on  mortgage interest rates as investors begin to more aggressively move capital (out of the relative safety of Treasury obligations and mortgage-backed securities) into riskier but higher yielding investments such as stocks. 

Today's conforming 30 year fixed rate is at 5.125%.

Fixed-income investors have been doing a pretty good job of absorbing all the supply the government has been pumping into the market place this week.  Yesterday's 3-year note auction result was decent - just not as strong as at the previous auction of these securities. 

Market participants are preparing for a $19 billion sale of 10-year notes today.  The government's debt auction process will conclude at 1:00 p.m. ET.  The realization that the Fed will not raise short-term interest rates anytime soon combined with major slack in the labor sector should prove to be key pillars of support favoring solid bidding at today's 10-year note auction.  If this reasoning proves solid, look for mortgage interest rates to finish the day unchanged to perhaps just a touch lower.

The level of mortgage interest rates will also be influenced this week by trading action in the stock markets.  I see reason to believe the Dow will find a bottom (between 8200 and 8130) from which to launch a counter-trend rally before the market close on Friday afternoon.  If my assessment proves accurate, rising stock values will tend to produce fractionally higher mortgage interest rates as investors move capital (out of the relative safety of Treasury obligations and mortgage-backed securities) into riskier but higher yielding investments such as stocks.

The Mortgage Bankers of America released their seasonally adjusted index of mortgage application activity for the week ended July 3^rd this morning.  The MBA's total application index rose 10.9% during the latest reporting period after slumping last week to its lowest level since November.  Refinance applications were up 15.2% while purchase application activity posted a more modest gain of 5.34%.  The average 30-year mortgage rate stayed at 5.34% last week.  That was up from the record low of 4.61% in late March but well below the year-ago mark of 7.04%.   

Today's conforming 30 year fixed rate is at 5.25%.

The macro-economic calendar is very thinly populated this week -- so the trend direction of mortgage interest rates will be largely influenced by the Treasury auction schedule and trading action in the stock markets.

The Treasury Department will conduct four auctions this week for the first time since they began issuing securities regularly in 1976.  Today's $8 billion auction of 10-year inflation-indexed notes will be followed by the sale of $35 billion of 3-year notes tomorrow, $19 billion of 10-year notes on Wednesday and $11 billion of 30-year bonds on Thursday.  That is a huge amount of supply for market participants to slog through.  The probability that mortgage interest rates remain unscathed (steady to fractionally lower) during this week's Treasury auction process is about the same as me being struck by lighting as I get out of the car to cash in my multi-million dollar lottery ticket.  It is possible - but definitely not very probable. 

The level of mortgage interest rates will also be influenced this week by trading action in the stock markets.  I see reason to believe the Dow will find a bottom (between 8200 and 8130) from which to launch a counter-trend rally before the market close on Friday afternoon.  If my assessment proves accurate, rising stock values will tend to produce fractionally higher mortgage interest rates as investors move capital (out of the relative safety of Treasury obligations and mortgage-backed securities) into riskier but higher yielding investments such as stocks. 

Today's conforming 30 year fixed rate is at 5.375%.

Mortgage interest rates crept fractionally lower this morning as a weaker-than-expected June nonfarm payroll report showed the economy is still laboring through a deep recessionary trough.  The Labor Department said employers cut 467,000 jobs last month.  The June job losses were significantly greater than the 363,000 loss most economists had been anticipating.  The national jobless rate edged up to 9.5% from May's 9.4% level.  The jobless rate now stands at it highest level since 1983.   As of the end of June, the world's largest economy has lost about 6.5 million jobs since the recession began in December 2007.  That's the biggest employment decline in any post World War II economic slump.  Today's dismal report from the labor sector indicates the economy was losing momentum as the second quarter came to a close.  In the convoluted world of mortgage interest rates - signs of economic weakness tends to be supportive of steady to perhaps incrementally lower mortgage interest rates.

This time around I think it will be difficult for mortgage interest rates to move to significantly lower levels from here - simply because of the huge amount of supply Uncle Sam is steadily dumping into the credit markets as he attempts to borrow himself into prosperity.  Next week the Treasury Department is scheduled to auction $35 billion of 3-year notes on Tuesday, $19 billion of 10-year notes on Wednesday, and $11 billion of 30-year bonds on Thursday.   While it is true the last Treasury auction drew solid demand from domestic and foreign investors alike - it is important to bear-in-mind the term of the securities offered were notably shorter.  If next week's Treasury auctions prove to be a stumbling block (as I suspect they will) -- then as you read this commentary it is very likely the mortgage market is putting in its highest prices (lowest rates) through at least next Friday.  

Today's conforming 30 year fixed rate is at 5.25%.

Mortgage investors are slogging through another day of relatively thin, indecisive trading action.  The day's economic data was at best a "mixed-bag" - and did nothing to clarify likely mortgage interest rate direction.

On the mortgage market friendly side of the ledger the private ADP employment report showed notably weaker payroll growth in June than most observers had expected.  Joining the ADP report in support of steady to fractionally lower rates was the Mortgage Bankers of America report indicating their seasonally adjusted index of mortgage applications, including requests for refinancing as well as purchase money, dropped 18.8% during the week ended June 12, 2009 as consumers' job concerns, inability to sell existing homes, and appraisal issues took a toll on loan demand. 

In the convoluted world of mortgage interest rates these two reports are both considered to be signs of economic weakness - and therefore supportive of the prospects for steady to fractionally lower mortgage interest rates. 

Offsetting the mortgage interest rate friendly ADP and MBA reports was data from the Institute of Supply Management showing conditions in the manufacturing sector continued to improve noticeably in June.  The ISM's factory activity index rose to 44.8 last month, its highest level since August -- while the production index climbed to 52.5, it highest level since September. The overall strength in the ISM index is leading most analysts to conclude the worst of the recession is over in the manufacturing sector. 

The National Association of Realtors chimed in this morning with a report showing the number of Americans signing contracts to buy previously owned home rose in May for the fourth consecutive month -- while global outplacement consultants Challenger, Gray & Christmas said planned job cuts by corporate America are down 33% from May levels.   Last but not lest traders are anxiously waiting this morning's announcement from the Treasury Department regarding the size of next Tuesday's 3-year note auction, Wednesday's 10-year note auction and Thursday's 30-year bond offering.  

As I write the mortgage interest rate friendly news of the day is losing a slight bit of ground to the less supportive data and scheduled events.

Tomorrow's morning's 8:30 a.m. ET release of the June nonfarm payroll figures remains the dominant event of the week.  Investors have already priced in expectations the number of jobs lost in June will match or exceed the consensus estimate of 355,000.   The national jobless rate is projected to ratchet up to 9.6% and that view is also reflected in current prices.  All will be well in the mortgage market as long as the actual numbers match or show an even worse picture of the labor sector than investors have already cranked in to their pricing models.  That is one side of a two sided coin.

The other possibility is that the actual numbers show a labor sector stronger than the majority of market participants anticipated.  If that's the case, Thursday's payroll data will immediately light a very short fuse on a very powerful firecracker - resulting in a mad scramble by investors to get out of the way before they get financially singed by the "hot" economic news.   Such a condition, should it develop, almost always results in higher mortgage interest rates.

Today's conforming 30 year fixed rate is at 5.375%.

Today marks the end of the second-quarter and the first-half of 2009.  It is a time when market participants will be busy making last minute adjustments to their portfolios before the books are closed - and the commission calculations for traders begin.  Trading action will likely be a little bizarre today as some market participants execute trades to do nothing other than to spiff up numbers that may otherwise not be that spiffy.   

This "window dressing" phenomenon in large part explains why so many analysts were barking at the moon immediately following the reach of the second tier Standard & Poor's/ Case Shiller home price index for April.  The index showed home prices in 20 metropolitan areas fell 18.1% on an annualized basis.  The annualized index slumped 18.7% in March.  The measure declined by 19% in January, marking its largest monthly swoon since records began in 2001.  I don't know about you, but it sure looks to me to be very premature to begin dancing in the streets declaring the slump in the residential real estate market has bottomed simply because the pace of decline in home values improved almost imperceptibly for their recent all-time lows.  Home values will improve as the employment picture improves.  With most economists still projecting the national jobless rate will reach 10% yet this year -- the prospects for a near-term sustained advance in home values will likely remain dim.     

Speaking of employment - Thursday's release of the June nonfarm payroll figures remains the dominant event of the week.  Investors have already priced in expectations the number of jobs lost in June will match or exceed the consensus estimate of 355,000.   The national jobless rate is projected to ratchet up to 9.6% and that view is also reflected in current prices.  All will be well in the mortgage market as long as the actual numbers match or show an even worse picture of the labor sector than investors have already cranked in to their pricing models.  That is one side of a two sided coin.

The other possibility is that the actual numbers show a labor sector stronger than the majority of market participants anticipated.  If that's the case, Thursday's payroll data will immediately light a very short fuse on a very powerful firecracker - resulting in a mad scramble by investors to get out of the way before they get financially singed by the "hot" economic news.   Such a condition, should it develop, almost always results in higher mortgage interest rates.

As I mentioned in this space yesterday trading action in the stock markets will be the "wild card" in all of this.  I see reasons to believe the Dow (target bottom 8350 to 8250) and NASDAQ (target 1810 or so) are becoming increasingly vulnerable to a multi-day downside price correction.  Should such an event occur, capital fleeing falling stock prices will tend to flow to the relative safe haven of Treasury obligations and mortgage-backed securities.  This so called "flight-to-quality" is generally supportive of steady to fractionally lower mortgage interest rates.  From a timing perspective - I think the chances are good the stock markets will put in a multi-day price high on, or before July 8^th.

Today's conforming 30 year fixed rate is at 5.375%. 

Trading activity is light this morning in the mortgage market.  Investors are uninspired to do much of anything with a large number of them choosing to keep their hands in their pockets as the 2^nd-quarter and the first-half of 2009 wind down.  The majority of market participants will likely approach Thursday's nonfarm payroll data cautiously as well.  No sense in taking a chance of getting burned by a potential "surprise" payroll number prior to a three-day weekend.

Investors have already priced in expectations the number of jobs lost in June will match or exceed the consensus estimate of 355,000.   The national jobless rate is projected to ratchet up to 9.6% and that view is also reflected in current prices.  All will be well in the mortgage market as long as the actual numbers match or show an even worse picture of the labor sector than investors have already cranked in to their pricing models.  That is one side of a two sided coin.

The other possibility is that the actual numbers show a labor sector stronger than the majority of market participants anticipated.  If that's the case, Thursday's payroll data will immediately light a very short fuse on a very powerful firecracker - resulting in a mad scramble by investors to get out of the way before they get financially singed by the "hot" economic news.   Such a condition, should it develop, almost always results in higher mortgage interest rates.

Trading action in the stock markets will be the "wild card" in all of this.  I see reasons to believe the Dow and NASDAQ are becoming increasingly vulnerable to a multi-day downside price correction.  Should such an event occur, capital fleeing falling stock prices will tend to flow to the relative safe haven of Treasury obligations and mortgage-backed securities.  This so called "flight-to-quality" is generally supportive of steady to fractionally lower mortgage interest rates.  From a timing perspective - I think the chances are good the stock markets will put in a multi-day price high on, or before July 8^th.

Today's confirming 30 year fixed rate is at 5.375%.

Trading activity is light this morning in the mortgage market with the action primary dominated by traders looking to take profits after this week's 100 basis-point rally.   The strong improvement in the mortgage market over the past five trading sessions was driven by the unexpectedly robust demand for 2-, 5- and 7-year notes during the three-part Treasury auction that wrapped up yesterday afternoon.  This is the first-time this year when the month-end Treasury auction did not cause a sharp sell-off in the credit markets.

Mortgage investors were relieved by the inflation numbers contained in this morning's May Income and Spending report from the Commerce Department.  Personal incomes soared 1.4% last month as social benefit payments flowing from the government's massive economic stimulus package worked their way into the data.  Excluding the impact of the stimulus package, disposable incomes rose a more humble 0.2%.  Consumer spending during May rose 0.3% -- its first monthly increase since February.  

The best news of all was found in the personal consumption expenditure index component of the report, a measure of inflation closely watched by the Fed.  This gauge of inflation pressures at the consumer level rose a very modest 0.1% last month, its smallest monthly gain since records began in 1959.  On a year-over-year basis the personal consumption expenditure index is up a very modest 1.8%.

The coming holiday shortened week will start off slow - but will end with a bang.  The calendar is completely void of economic news until Wednesday morning's release of the Institute of Supply Management report on last month's activity levels in the nation's manufacturing sector.  The current consensus among economists is that while activity probably improved during the month of May - it won't be high enough to suggest a recovery in the sector has begun in earnest. 

On Thursday the Labor Department will release the June nonfarm payroll figures with most analysts anticipating a headline number showing a loss of 355,000 jobs as the national unemployment rate inches up to 9.6%. 

Mortgage investors have already priced in these expectations so -- should the consensus estimates prove generally accurate -- the impact on the direction of mortgage interest rates will likely be negligible.  In the unlikely event the Institute of Supply Management's index of manufacturing activity exceeds 45.5% and/or last month's job losses prove to be less severe than projected - mortgage interest rates will almost certainly creep higher into the Fourth of July weekend (the mortgage market will be closed on Friday, July 3^rd).    

Today's conforming 30 year fixed rate is at 5.375%.

The mortgage market got off to a nice little rallying start this morning following the Labor Department's announcement that the number of Americans filing first-time claims rose by an unexpected 15,000 during the week ended June 20^th.  The four-week moving average of jobless claims, a value that smoothes out the volatility in the raw weekly numbers, rose a mere 500.  

The true underlying health of the labor sector is a huge question in mortgage investors' minds.  If the labor sector is really weaker than most now believe - the economy will sag further.  In the convoluted world of credit markets a deteriorating labor sector tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.  On the other hand, if the labor sector is stronger than anticipated - with bankruptcies at General Motors and Chrysler Group together with normal model year retooling furloughs and standard end-of-the-year layoffs in the nation's schools creating a noticeable but temporary upward skew in the statistics -- the return to a steady-to-lower trending pattern of data in the labor sector would almost certainly put upward pressure on mortgage interest rates.  I have no idea which of these two scenarios will prove to be the most accurate - but I do know for a fact investors will be keenly attuned to this economic metric over the course of next three- to four-weeks for hints indicating a shift in the labor market trend.

In a separate report the government announced first-quarter Gross Domestic Product, a statistical measure of the value of all the goods and services produced within the country's borders, dropped at a 5.5% annual rate, after shrinking 6.3% in the fourth-quarter of last year and 0.5% in the third-quarter.  The Commerce Department's original estimate of Gross Domestic Product was -6.1%, revised to -5.7% and then to the current -5.5% which will not be revised again.   For reasons of their own, credit markets shrugged off the substantial quarter-over-quarter improvement embedded into today's measure of domestic economic activity.  It is highly unlikely mortgage investors will continue to be so nonchalant should the second-quarter Gross Domestic Product figure show additional improvement.  It will be another thirty-days or so before this particular issue rolls around again into such sharp focus -- the government will make public their initial estimate of second-quarter Gross Domestic Product performance on July 30^th.       

Most observers believe today's 7-year note offering will be well bid by domestic and foreign investors alike.  If so, this event will likely have little, if any noticeable impact on the trend trajectory of mortgage interest rates today.   A poorly bid 7-year note auction, a condition that would require the government to offer yet higher yields to attract the required capital, will almost certainly cause disappointed mortgage investors to nudge rates fractionally higher.

Today's conforming 30 year fixed rate is at 5.50%.

Trading activity in the mortgage market is light this morning as investors pace the floor awaiting the results of today's record-setting $37 billion 5-year note auction (concludes at 1:00 p.m. ET).  This big debt offering will be followed within roughly an hour by the much anticipated release of the post-meeting statement from the Federal Open Market Committee -- expected at 2:15 p.m. ET.

Most observers believe today's 5-year note offering will be well bid by domestic and foreign investors alike.  If so, this event will likely have little, if any noticeable impact on the trend trajectory of mortgage interest rates today.   A poorly bid 5-year note auction, a condition that would require the government to offer yet higher yields to attract the required capital, will almost certainly cause disappointed mortgage investors to nudge rates fractionally higher.

On a different subject -- the Commerce Department reported this morning that new orders for long-lasting manufactured goods rose by a much-stronger-than-expected 1.8% in May - three times the 0.6% gain most economists had expected to see.  New orders excluding transportation advanced 1.1% last month, well ahead of the consensus estimate for an improvement of 0.4%.  In a separate report the Commerce Department said new home sales slipped 0.6% lower in May as the median sales price rose to $221,600 from the April level of $212,200.  The Mortgage Bankers of America chimed in with their weekly index of loan applications -- which rose 6.6% during the week ended June 19 - after slowing to a pace not seen since last November.  Purchase applications were up 7.3% while refinance applications increased by 5.9%.   This collective body of data simply added to a growing collection of statistics suggesting the economy is stabilizing.     

Mortgage investors are keenly aware that there is a big difference between an economy that is stabilizing -- and an economic recovery.  Until/less the macro-economic data trends improve on a multiple month-over-month basis -- the upward pressure stronger-than-expected economic data will exert on the direction of mortgage interest rates will continue to be largely muted.

Today's conforming 30 year fixed rate is at 5.50%.

It is show time.

The Treasury Department's record setting $104 billion three-part auction officially kicks off with today's $40 billion 2-year note offering (concludes at 1:00 p.m. ET).  Most observers believe credit market participants will have little trouble absorbing this record amount of supply - but they are not so sure investors will greet tomorrow's $37 billion of 5-year notes and Thursday's $27 billion of 7-year notes quite as enthusiastically. 

Right in the middle of Uncle Sam's massive record setting $104 billion dollar three-day borrowing spree Fed Chairman Bernanke and his band of merry central bankers are huddling to discuss monetary policy and what if any adjustments should be made to their current quantitative easing strategies.  The Fed's two-day meeting will conclude tomorrow afternoon with the release of their post-meeting statement at 2:15 p.m. ET. 

The likelihood that policymakers will choose to leave their benchmark fed funds rate at zero is a virtual "no-brainer." Such an outcome is already priced into the mortgage market.  Investors, however, will be firmly focused on the Fed's post-meeting statement for any hint the central bank intends to ramp-up their current authorization for the direct purchase of $1.25 trillion of agency mortgage-backed securities, $300 billion of Treasury debt obligations and $200 billion of the corporate debt obligations of Fannie Mae and Freddie Mac. 

So far, the Fed has burned through roughly 50% of their current interest rate supporting direct-purchase "war chest."  The majority of market analysts tend to believe the Fed will choose to make no change to the size of their direct-purchase checkbook this time around - preferring to take a "wait-and-see" approach -- before printing up another gargantuan batch of dollars to temporarily send interest rates in general, and mortgage interest rates in particular, a few basis points lower.  

If this assessment proves accurate -- look for mortgage interest rates to drift fractionally higher for the balance of the week.   In the unlikely case the Fed surprises the market place with the announcement of a notable expansion of their quantitative easing programs -- expect mortgage interest rates to slide incrementally lower from current levels.

On a different subject - the National Association of Realtors reported this morning that May Existing Home Sales climbed 2.4%.  The May sales gain was slightly lower than most economists had anticipated - but their disappointment was largely muted by the realization that existing home sales have now posted two consecutive monthly gains - something that has not happened since 2005.  This report had no impact on the trend trajectory of mortgage interest rates today.

Today's conforming 30 year fixed rate is at 5.50%.

The prospect for notably lower mortgage interest rates has hit a wall-of-worry created by investors' jitters over this week's record amount of supply Uncle Sam plans to dump into the credit markets.  The Treasury Department intends to sell $40 billion of 2-year notes on Tuesday, $37 billion of 5-year notes on Wednesday and $27 billion of 7-year notes on Thursday (for a total of $104 billion). 

Investors will comb carefully through Wednesday afternoon's post-meeting statement from the Federal Open Market Committee.  Market participants will consider carefully the Fed's guidance on growth and they will hunt diligently for any hint the central bank intends to expand its $300 billion program for the direct purchase of Treasury debt obligations. 

Fed Chairman Bernanke and his fellow committee members will be walking a tight-rope as they craft the written statement of their view of the economy and their analysis of the appropriate blend of monetary and credit policy.  The majority of economists see zero chance the Fed will raise its benchmark short-term fed fund rate as Mr. Bernanke and company simultaneously attempt to nurture hopes the end of the recession is near.   The chances are high that the Fed's post-meeting statement will come off as a mixed message - especially to fixed-income investor investment community.  These market participants are hyper-sensitive to the idea that improving economic activity leads to increased demand for capital - which in-turn leads to higher interest rates.  In my experience, when investors are unsettled about a message from the Fed, they tend to take a "safe-rather-than-sorry" approach to their mortgage pipeline risk management strategies.  In this case -- if history repeats itself -- look for mortgage interest rates to struggle to make any headway toward notably lower levels this week.   

Today's conforming 30 year fixed rate is at 5.50%.