Mortgage backed securities (MBS) prices are lower (rates higher) as investors brace for the $101 billion of 2, 5 & 7yr notes slated to be sold next week.

Traders also are focused on the preliminary results of tests of U.S. banks, fearing some are still struggling to overcome lending that precipitated the global financial crisis and may find it difficult to raise money after bad assets at the biggest lenders almost tripled on average in the past year.

Durable Goods orders declined 0.8% in March, less than expected, but February's sharp gain of 3.5% was whittled down substantially in revisions to a 2.1% increase. Weakness in new orders was widespread, led by communication equipment and primary metals. Year over year, new orders for durable goods are down 25.2%.

New Home Sales fell 0.6% in March to 356K, but February's number was revised up to 358K. Sales were down 31% from a year ago but the number of homes for sale fell to 311K, the fewest since January 2002. Supply of homes still is too large, representing 10.7 months of inventory at current sales pace. Median sales price dropped to $201,400, the lowest level since December 2003.

Given the jobless rate, tighter credit and record foreclosures, purchases will not rebound substantially in the coming months but are likely to stabilize. With unprecedented help from the Fed, mortgage rates continue to inch downward and for the first time 30yr fixed rates are lower than the 1yr ARM, 4.80% vs 4.82%. That explains why only 1.4% of all mortgage applications are using variable rate products.