After enduring a few days of selling in the mortgage backed securities (MBS) market (and higher mortgage rates), it was nice to see a quiet rally yesterday. In what can be described as a boring trading day in the fixed income market, MBS held steady in a tight range before a late afternoon rally helped lower mortgage rates a few basis points. There were only a few reports of lenders passing along the improvements, but rate sheets are slightly better this morning.

The biggest event taking place today will be Federal Reserve Chairman Ben Bernanke testifying before the Joint Economic Committee on the economic outlook. Investors will be listening to his testimony for any hints at future monetary policy and his outlook on the economy. Lately, many economic reports are showing an easing of the current economic downturn. It is suspected that his testimony will be more optimistic than previous testimonies. The market will however be more focused on the Q&A session after he read his prepared testimony is read. The MBS Commentary blog will cover the highlights after his testimony.

The only relevant economic data to be released this morning is the ISM non manufacturing index. This report is a survey of 400 firms across the United States on their outlook on the economy and the strength of the non manufacturing sector which would include construction, transportation, and other service related industries. Readings above 50 indicate an expanding sector while readings below 50 indicate a contracting sector. Last month, this report disappointed the markets by showing a decrease in the reading from the previous month. This month the consensus called for a reading of 42.0 following last month’s 40.8. The report this morning beat expectations with a reading of 43.7. The survey continues to show our economy is contracting, but the pace is slowing which has also been confirmed by several other recent economic reports. Do you feel the worst is over, or are investors jumping the gun on the economic optimism?

At 1 pm eastern time, the Treasury Department will be auctioning off $35 billion in 3 year treasury notes. The added supply of debt will apply pressure on treasury yields to increase. High demand, especially from foreign/indirect bids can help to move yields lower which would benefit MBS. The MBS Commentary blog will report on the auction after it is completed.

Since the open of the markets today, MBS are holding onto gains which should allow lenders to keep par 30 year conventional mortgage rates in the 4.625% to 4.875% range for well qualified consumers. If you are looking for a 15 year fixed rate, you should expect rates in the 4.375% to 4.5% range. To qualify for these rates, you must have a FICO credit score 740 or higher, a loan to value at 80% or less and be willing to pay all closing costs associated with your loan including 1 point loan origination/discount/broker fee. You can always elect to pay less in closing costs and take a higher interest rate or you can elect to pay additional points to buy down your interest rate.