6/24/09

Mortgage backed securities (MBS) prices are lower (rates higher), ahead of the FOMC policy statement due at 1115am pt and before the Treasury auction of $ 5yr notes. Today's 5yr note auction is the largest sale of the security since 1953. The concern is the liquidity injections and unprecedented borrowing will cause inflation to accelerate, endangering the prospects for a recovery. The Fed will probably reassure investors they can keep interest rates at record lows without igniting inflation, stressing the increasing slack in the economy will contain consumer prices into next year. New Home Sales unexpectedly fell in May and the median sales price fell 3.4% from a year ago, but was up 4.2% from a month ago. All eyes are on the FED today. Call me with any questions.