Apologies – meant to post this yesterday!

For better or worse, Fed policy, as dictated in yesterday’s meeting, will keep the bond market stuck in a range.  Given the supply/demand issues with quantitative easing, our mortgage pricing we have seen over the past month could continue for weeks.  On one hand we have the Fed stopping its purchase of mortgage backs at the end of the month.  They have been buying 10 billion a week.  On the other side, the market has built up a sizable short position in MBS from both the portfolio side and the Fannie/Freddie buy back that will last until August.

As we mentioned yesterday, all the Fed can do is manage their way to the end game, looking for the private sector to pick up steam so we can get back to “normal”.  Earlier today, PPI, inflation at the wholesale level, fell .6% headline while the core index (ex-food and energy) rose .1%.  This is the largest decline in seven months.  Energy prices were the heavy hitter, falling 2.9% with gasoline prices down 7.4%.  Inflation by any standard is a non-issue given this data.  Fed Chief Ben Bernanke will be on the hill today, testifying before the House Financial Services Committee.

Currently, everyone is wearing green as the 10 year note is up 2/32’s (3.64% yield), MBS up 1/32^nd, and stocks up 30 something on the big board.  Technically, the 10 year note retested the peak set on February 5^th, pulled back a little, but still trades in the upper end of the range.  The trade doesn’t seem to have a lot of momentum, telling us that this is more about short covering (traders who bought the market now selling) than it is about new buyers coming into the market.  Stocks are at a crossroads as well, grinding higher in what looks like a gravity defying move.

“If” the health care bill comes to a vote this week and passes, stocks could very well change their tune.  Bottom line here is that most markets are neutral, waiting for something to fuel a trend change.