Bonds have been better most of this morning. The 10-year Treasury is -.010% with the rate at 4.626%. That rate is higher than it was at the opening.  At 07:30cdt {12:30gmt} the 10-year Treasury was -.022% with the rate at 4.614%.

There is the probability that the bond market is reacting to the FOMC Policy Announcement tomorrow afternoon. Traders are taking position to hedge bets, or in many cases make their bet.

At the same time, the bond market may have been responding to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage.  Given the current oversupply of houses, verses the very low number of buyers, we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammySales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006.
Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.

When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.

Wholesale Inventories were at the low end of expectations at +0.3%. As it was as expected, it did not affect trading on the bond. The intra-day trading chart agrees with that interpretation.

UBS & Redbook retail Sales numbers are showing that the consumer is slowing spending. That could be good for June’s Retail Sales numbers.

TOMORROW, 09 May 2007.

The schedule of data being release is very light. The market’s opening sees the release of the weekly MBA Purchase Application Index. Last week the 4-week moving average moved upwards. Hopefully for readers of this blog, that trend will not only continue but compound.

Of course, the big news on Wednesday will be the FOMC Policy Announcement at 13:15cdt {1:15pm, 18:15gmt}. It is our guess, and most everyone’s, that the FED will leave its very short term rates at the current level of 5.25%.

The question will be which way the bias goes. The bias is simply the FEDs guess as to the mid & long term direction they will probably move the Fed Funds rate. The rate of growth in the economy is slowing. At the same time inflation has not slowed down yet. (We will post a long-term outlook on this soon.) Still, we think there is the likelihood that the FEDs bias will be towards lowering rates. Bernanke has often said that he still sees inflation, but there are sings it could slow soon.

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com