Loan pricing is set to weaken this morning as "rate sheet influential" MBS coupons are following benchmark Treasury prices lower after once again failing to breach key resistance at 3.09% yesterday. The 10-year Treasury is currently -8/32 at 99-23 yielding 3.156% and the 2s/10s curve is 2bps steeper at 262bps wide. The FNCL 4.0 is -5/32 at 100-00 and the FNCL 4.5 is -3/32 at 103-11.

The risk trade is attempting to make a comeback after getting beat up yesterday. Asian stocks were relatively steady after a sharp sell-off Monday. Shares in Japan and Hong Kong rose 0.09% and 0.17%, respectively, while Chinese shares fell another 0.25%. In the U.S., S&P 500 futures are up 5.25 points to 1,320.50 and Dow futures are 38 points up at 12,403.  Commodities are also catching a bid. Light crude oil is 1.30% higher at $98.97 per barrel, while gold prices are +0.29% to $1,519.80

Key Events Today:

8:25 - Fed governor Elizabeth Duke speaks on financial education at Boston University.

9:50 - Thomas Hoenig, president of the Kansas City Fed, speaks to the 29th Annual Monetary and Trade Conference in Philadelphia.

10:00 - The 11.1% gain in New Home Sales for March was the first increase since December, but economists don't anticipate a repeat in April. The consensus forecast calls for the 300k annual pace of sales to remain flat, reflecting the dismal state of the industry. That pace is 40% lower than the 40-year average of 500k, according to economists at BBVA. 

"March new home sales bounced hard off of February lows, proving in large part that the prior month's dismal performance, the weakest reading in the 50-plus year history of data collection, was a one-time drop," said economists at Janney Capital Markets. "Despite the bounce from those lows, we hold no expectation that new home sales will rise meaningfully in April, or really at any point in the near future."

Janney points out that new home prices - which increased 2.9% in March -have held at "much higher levels" than trends among existing home sales. For instance, prices in this index have dropped 12% since mid-2006, whereas existing home prices are off by 29%. 

"Based on this builder hesitancy to lower prices, a trend which we see continuing, the ratio of new to existing home sales seems unlikely to recover to pre-crash levels until at least the middle of the current decade," they predict. "That timeframe coincides with heavier debt maturities at the major homebuilders, maturities which may encourage said builders to raise additional cash through prices cuts and greater property sales."

Economists at Nomura Global Economics made the same point: "Owing to the incredible amount of foreclosure and short sales in the market for existing homes, the new-to-existing-home-price-ratio is simply too wide for new home sales to compete on price. New home sales have hit bottom, but as yet are not exhibiting any measurable upward trend."

1:20 - James Bullard, president of the St. Louis Fed, speaks to the Cape Girardeau West Rotary Club in Cape Girardeau, Mo.

Treasury Auctions:
1:00 - $35billion 2-Year Notes