The Day Ahead: Slight Gains in Bonds & Stocks

Treasuries are trading near fresh calendar year highs this morning. Little data comes out today until the FOMC minutes are released in the mid-afternoon hours.

Mortgages are following the leader with modest morning price gains. The benchmark 10-year Treasury is yielding 3.10% in early trading, versus 3.12% at Tuesday's close. The 30-year yield is at 4.205%, versus 4.23% Tuesday and 4.28% at Monday's close. The two-year yield has sold off slightly as traders reach for yield in longer maturities.  It's at 0.528% is early trading.

In his morning note, MND's Managing Editor Adam Quinones writes, "Bond prices are up and benchmark yields are down as stock futures flatten out. If secondary takes down MBS indications right now, rebate would be better on rate sheets. The econ calendar is clear until 2pm when the FOMC Minutes are released. This leaves investors to trade around the gyrations of the stock lever and the Fed's daily QEII coupon pass (2028 to 2041 maturities). If it were our book to manage we'd be looking to take profits as 10s cross over 3.09%. If this spot is broken, resistance is quickly found at 3.07%. This level is a very important because it's where snowball selling picked up momentum in early December 2010 (shot from 3.07 to 3.21%). We'll call it a major "duration ledge". If broken we'd be setting ourselves up for a run toward 3.00% and improved "Best Execution" mortgage rates. On the whole we remain defensive of further gains but the door is definitely open. Stay close. We're in the midst of a potential shift down in coupon."

Equities are flat to slightly better.  S&P 500 futures are 2 points higher at 1,327.40 and Dow futures are 17 points up at 12,454. In four of the past five trading sessions the S&P has tumbled for a cumulative dip of 2.1%, according to BMO Capital Markets.  Asian markets are providing guidance after the Nikkei posted a solid 1% gain, while the Hang Seng rose 0.5% and China's CSI 300 jumped 0.8%

Light crude oil rose 1.25% overnight to $98.12 per barrel, while gold prices declined 1.40% to $1,480 per ounce.

In new economic data, MBA said mortgage applications jumped 7.8% in the week ending May 13. 

Refinancings led the way with a 13.2% gain to its highest level since Dec. 10, 2010. Purchases, meanwhile, fell 3.2% in the week and remain 1.7% lower than a year ago. 

"The 30-year fixed mortgage rate is now 53 basis points below its 2011 peak, and has decreased for five straight weeks," said Michael Fratantoni at MBA. "Over this five week span, the refinance index has increased by about 33%. Refinance application volumes remain about 50% below the most recent peak last October."

Refinances accounted for 66.7% of all new applications - the largest share observed since late January.

The average 30-year fixed-rate mortgage was 4.60% in the week, down from 4.67% a week before.

The Day Ahead:

2:00 - Minutes from the Federal Reserve's Open Market Committee may pack less punch this usual this time around, as Fed chairman Ben Bernanke delivered his first press conference within hours of the last monetary policy update. 

That address "provided insight into the details of the meeting much earlier than usual," according to economists at Nomura. "In particular, the much-awaited updates of the FOMC members' quarterly forecasts  were released at the time of the press conference."

Nomura does expect the minutes to provide more discussion of inflation, and perhaps more talk on the Fed's eventual exit strategy from current policies.

7:00pm - James Bullard, president of the St. Louis Fed, speaks to the Money Marketeers in New York.