US rate markets slightly better this morning but not much; the early trade in stock indexes were pointing to a better open on UBS earnings. The Fed begins its FOMC meeting today concluding tomorrow with the short policy statement at 12:30 then Bernanke's awaited press conference at 2:15.

At 9:00 the Case/Shiller Feb home price index; on the 20 city measurement prices fell 3.3% yr/yr and on the 10 city metro prices fell 2.6% yr/yr. No reaction to the data as usual, there isn't any improvement in the housing markets with prices continuing to fall and consumers seeing little compelling reason to buy or sell. Housing was the prime driver for the US economy since WW II until four years ago, now there seems to be little interest from Washington to directly address the issue.

At 9:30 the DJIA opened +16, the 10 yr note +4/32 and mortgage prices at 9:30 +.12 bp.  

At 10:00 April consumer confidence from the Conference Board, expected at 64.4 frm 63.4 in March, was better at 65.4 frm March revision up to 63.8 frm 63.4. The present situation measurement at 39.6 frm 37.5 the highest since Nov 2008; 12 month expectations 82.6 frm 81.3 and the 1 yr inflation outlook index to 6.3 frm 6.7. Overall a better consumer outlook boosted equity indexes a little but the bond market had little initial reaction.

The only significant focus point now is on tomorrow's FOMC statement and what Bernanke will say at his press conference in answering what we hope will be the tough questions. The general conclusion now is that the Fed will complete its QE 2 $600B treasury purchases by the end of June. What comes next is what markets are seeking; most bond market participants and stock market enthusiasts are expecting Bernanke will keep interest rates low for at least the rest of the year and possibly longer. Bernanke and some other Fed officials have repeatedly defined the economy as in "modest recovery" and still fragile. As long as the Fed (Bernanke) see it that way the Fed will do whatever is necessary to keep rates low. As long as that outlook holds stock markets will continue to improve, low rates don't have much positive impact on consumers (maybe lower car loans), mortgage rates are low but that isn't motivating anyone. All about driving the dollar lower and pushing investments into equity markets.

Thursday the first look at Q1 GDP is expected at 1.5% to 2.3% growth; a lot weaker than was thought just six weeks ago. Increasing numbers of analysts are currently lowering growth expectations for Q2. The Fed isn't about to yank its support with the economic outlook not as rosy as most were expecting a short time ago. Two weeks ago markets were all a buzz fearing inflation as commodity prices increase, today focus has changed to how much more help the Fed will provide. Unlikely we will have another QE 3 but the Fed has other ways to pump money into the bond markets; it may decide to reinvest the interest and principal payments from its bond holdings in treasuries.

The bond market isn't expecting US rates will increase when the Fed ends QE 2 at the end of June. Since last Nov the Fed has purchased about $550B of treasuries while Treasury has issued $825B of notes and bonds, when the Fed ends its QE as is generally expected traders apparently believe markets will step up and fill the short-fall.

Treasury auction $35B of 2 yr notes at 1:00 this afternoon, expectations are for good bidding.

Technically the bond and mortgage markets remain bullish; that said we will continue to stand down from buying treasuries at least until we hear from Bernanke tomorrow.

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