The major story today is the Fed’s record auction of 2-year notes.  The Fed will sell $43 billion of them later this morning.  The additional supply of fixed income securities will compete with mortgage-backed bonds for investment dollars.  Should demand for bonds be strong we’d expect mortgage rates to remain low and vice-versa.

Threatening the demand for bonds today is that fact that Japan is celebrating a national holiday.

The Fed begins a two-day meeting on monetary policy today.  Tomorrow they are expected to leave short-term interest rates unchanged.  What we’ll be listening for are any comments relating to the Fed’s TALF program and whether or not they will use the remaining $200 billion to purchases mortgage-backed securities or not.  If they indicate that they will not this would almost certainly cause rates to rise.

Current outlook: locking bias