This morning's commentary provided by Fannie Mae ~
Good morning,

Yesterday, mortgages opened slightly weaker and moved to 1/32 tighter to swaps by early afternoon. Real money buying picked up after President Obama unveiled a $275 bln Homeowner Affordability and Stability Plan. After his speech, the mortgage market saw $700 mln in origination in 20 minutes. The Fed continued to buy mortgages at lower dollar prices. A total of $3 bln of origination was met with good demand. The down-in-coupon trade was active as banks, originators, money managers and hedge funds moved out of 5.5s and 6.0s into 4.0s and 4.5s.

Uncertainty sets in on how the loan modification plan will affect prepay speeds on the premium coupons due to credit and LTV constraints.For details of the Plan, please refer to the government’s new Web site, FinancialStability.gov, which includes an executive summary, fact sheet, case studies, and a Q&A.

Treasury prices are lower this morning on expectation of $97 bln of debt to be sold next week to support the government’s spending.

Today also brings a busy economic calendar.
At 8:30 a.m. ET, weekly jobless claims are expected to decline -3k while continuing claims are expected to rise +20k. Despite the small drop in initial claims, the labor market will continue deteriorating as layoffs persist.

The Jan PPI report is also released at 8:30 a.m. ET with expectation of a +0.3% m/m increase, and the Jan core PPI is expected to rise slightly at +0.1% m/m.

Although the core PPI rose in 2008, it is expected to fall this year as the weakening economy sets in with plunging energy and commodity prices. Also on the docket at 10 a.m. ET are the Jan leading indicators report (expected at 0%) and the Feb Philly Fed manufacturing index (expected to fall -0.7 pts).

Have a Great Day!