Although lender's adjusted mortgage loan pricing by a few basis points yesterday, for the most part mortgage rates were unchanged as the bond market failed to make much progress in either direction. In the absence of economic data and noteworthy events, it was a pretty boring session yesterday. Both benchmark Treasury yields and mortgage-backed securities prices did however manage to make marginal improvements, perhaps I should say they didn't get worse instead as gains were minimal. Slightly improved is better than slightly worse though right?

The economic calendar is once again light today with the only significant data being the International Trade report. This data reports on the difference between the dollar amount of what our nation imports and the dollar amount of what our nation exports to other countries.   The report indicated our trade deficit widened 9.7% in November to $36.4billion, higher than economists expectations.   The larger deficit is being attributed to higher oil prices, something that is viewed as a manageable worry by the Federal Reserve.    Imports posted a 2.6% increase while exports rose for a seventh consecutive month by 0.9% indicating increasing demand for U.S. products overseas.    There was no reaction from the markets following this report.

There was another bit of news release this AM that is less mainstream than the above discussed Trade Balance release: the National Federal of Independent Business released their monthly optimism survey early this morning. This report gives us an inside look at the sentiment of small business owners, a group that makes up the majority of hiring in the US. According to the survey, small business optimism fell 0.3 points in December to 88. More importantly the NFIB notes that improvement has stalled. Here are a few comments from the NFIB chief economist:

•  “Continued weak sales and threatening domestic policies from Washington, have left small business owners with little to be optimistic about in the coming year.”
• “Capital spending is on the sidelines. Spending on capital projects remained at historic low levels, as did the demand for credit to finance such projects.”

This is not a great sign of things to come for the labor markets. It is also in line with our expectation that the housing market will experience a prolonged recovery process as unemployed Americans are unable to qualify for a mortgage!

So far today yesterday's modest improvements have extended over into today, however instead of being "modest", the gains have been substantial!

This has allowed lenders to improve mortgage rates this morning.

The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs with an estimated one point loan origination/discount/broker fee.

For a more indepth explanation of the underlying causes of this rally, READ MBS OPEN

At 1:00pm eastern, the Department of Treasury will auction $40billion of 3 year notes.   Since the supply is already known, market participants will look at the demand for our nation’s debt to gauge its success.   High demand, especially by indirect(foreign) bids, is one of the many factors that have attributed to mortgage rates holding near historic low levels despite record amounts of government borrowing.   Weak demand could pressure the fixed income sector lower today which could lead to worsened rate sheets this afternoon.  Matt and AQ will cover the results once the auction is complete on the MBS Commentary blog.As a reminder, tomorrow the Treasury will auction  $21 billion 10 year Treasury notes and $13 billion in 30 year bonds on Thursday.

Yesterday I advised that Thursday was the best opportunity to see noticeable improvements in mortgage rates. Thursday is the last Treasury aucton of the week, after this round of Treasury debt supply is taken down by the market, we are hopeful for some sort of a recovery rally. With that in mind I would recommend that you cautiously float. However if you have been waiting since early December to lock in your rate, I would strongly consider taking today's gains while you can get them because a relief rally is not guaranteed.

While there will be short spurts of mortgage rate improvements, we expect in the longer time frame (by the end of Q1 2010) that rates will hold over 5.00% and possibly even move higher.

Would love to hear your opinions for mortgage rates this year.   Do you think we will see rates below 4.75% for a 30 year fixed loan?