Mortgage Bonds advanced in early trading today on the heels of a speech by Federal Reserve Chairman Ben Bernanke. Developments later in the day could change that direction -- stay in touch with your mortgage advisor first thing tomorrow about locking any outstanding home loan options. Bernanke, in a keynote speech to open the FDIC Mortgage Lending Forum, said the Fed is considering extending its Term Auction Facility Program to investment banks through the end of the year. The Term Auction Facility Program was designed to provide emergency loans to liquidity strapped investment banks in order for them to overcome credit problems and ease the credit crisis. The Program is presently scheduled to expire in the middle of September. Bernanke also said the Fed would issue new rules to protect home buyers from predatory lending practices in an effort to avoid a repeat of the current mortgage crisis. Pending Home Sales for May were down -4.7%, a bit worse than estimates of -2.8%. However, the prior month's number was revised higher to 7.1% from the previously reported 6.3%. This report is not a big surprise, and indicates the housing market is not out of the woods just yet. Richmond Fed President Jeffrey Lacker is slated to talk on the current outlook for the economy at the National Economists Club, in Washington beginning at 12:30 pm ET. Just as we saw San Francisco Fed President Janet Yellen's comments impact the Bond market yesterday, we could see a market reaction this afternoon from what Lacker has to say about inflation and economic growth. Remember that Lacker frequently dissented when the Fed was in their rate cutting cycle. It may not be a surprise to hear him make some comments that highlight his inflation concerns, which could cause some intraday problems for Bonds.
Treasury Secretary Henry Paulson is scheduled to wrap up the FDIC Forum on mortgage lending in Arlington, Virginia with some closing remarks beginning at 3:00 pm ET. The bond market will still be open at this time so we could see a late reaction to Paulson's message as well. Alcoa, Inc. kicks off 2nd Qtr. earnings season today in what is expected to be a poor series of corporate earnings reports. Thomson Reuters is estimating 2nd Qtr. earnings have fallen by 11.1%, significantly worse than the 2% decline they predicted in April. If the Stock market continues to head lower on worse than expected earnings, we could see Bonds regain lost ground.
Technically, Bonds have broken above their 25-day MA after yesterday's sharp and sudden reversal higher. Yesterday's candle formed a "hammer", which is often a sign that a rally will continue. So far this morning, that has been the case - but the market is very fickle, and can shift direction very quickly, as we have seen of late. There is also some overhead resistance to contend with - so for now we will Float, but cautiously, and stay in touch tomorrow. | 
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