6/23/09

Mortgage backed securities (MBS) prices opened lower this morning after yesterday's gains which were fueled by stock market losses boosting demand for fixed income assets, like MBS. MBS prices have since rebounded. Today the Treasury will auction $40 billion of 2yr notes, first of this week's three sales totalling a record $104 billion. The last auction drew the most demand since November 2006 from foreign central banks, helping ease concern that international investors will begin to shy away from Treasuries as U.S. borrowing surges to fund bank bailouts, fiscal stimulus spending and a record budget deficit. The Fed starts a two day meeting today to consider any changes to its pledge to buy Treasuries, agency debt and MBS to lower consumer borrowing costs, and whether to keep its benchmark interest rate near zero. The FOMC statement is due at 1115am pt tomorrow.