6/12/09-Finally Some Good News

Good morning. Mortgage backed securities (MBS) prices are sharply higher in active trading as demand at yesterday's 30yr bond auction helped ease concern that international investors will slow purchases amid record U.S. debt sales and after release of this morning's economic reports. This helps to move rates lower (Hooray!!!); Indirect bidders, an investor class that includes foreign central banks, bought 49% of the bonds on offer yesterday, the biggest percentage since 2006. Japanese Finance Minister said his country's confidence in U.S. debt is unshakable. Japan is the second largest U.S. creditor behind China. U.S. import prices rose in May, for the third straight month and the largest increase since July last year, reflecting the increasing cost of oil that threatens to undermine the economic recovery. Prices of imported goods, compared with a year earlier, dropped 17.6%, the biggest decrease since 1982. The Consumer Sentiment index edged higher, showing little improvement and some concerns over inflation. The expectations component, which has been driving measurements sharply higher for the last two months, actually fell 4pts, the first decline since February. Inflation expectations rose, which typically appears when coming out of recessions, certainly reflecting higher prices at the gas pump. Crude oil fell after a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature. It’s a lot of information today, but the bottom line is the rates have finally improved a bit.