ANYTHING THAT BEGINS WITH ‘I DON’T KNOW HOW TO TELL YOU THIS’ IS NEVER GOOD NEWS” Ruth Gordon. But after a trend of gradually worsening over the past month, Bond prices and home loan rates finally got the good news they’d been waiting for…

that pesky inflation rate finally appears to be moving lower. Early last week, the Consumer Price Index (CPI) showed core consumer price inflation as better than anticipated, falling to a year-over-year 2.5% rate, down from 2.7% reported last month. While lower prices on goods and services are certainly good news for all of us, the consumers; it was especially welcome for inflation-hating Bonds and home loan rates. Following the news, home loan rates improved by .125%, and appeared destined to improve even more.

But this wasn’t to be - what happened? Bond prices were feeling the love, home loan rates were improving - but right in the middle of the party, Bonds ran dead into a tough ceiling of technical resistance, stopping them cold and turning them back, causing them to lose some of the nice ground they’d made in the first part of the week. The path of least resistance ahead appears to be that Bond prices and home loan rates may worsen before they get better…but it all depends on the flavor of the news ahead.

FOR MOST AMERICANS, TAX SEASON IS OVER…BUT MORE PEOPLE THAN EVER ARE HEARING THEIR CPA SAY, “I DON’T KNOW HOW TO TELL YOU THIS…BUT YOU’RE GOING TO HAVE TO PAY ALTERNATIVE MINIMUM TAX THIS YEAR”. NOT GOOD NEWS. WHAT’S THE STORY? THIS WEEK’S MORTGAGE MARKET VIEW EXPLAINS.

Forecast for the Week

The week’s economic calendar contains mostly mid-level reports, but will provide an always-interesting look at the housing market, with Existing Home Sales on Tuesday and New Home Sales on Wednesday.

Unless any of the news and releases this week prove to be surprises, Bond prices and home loan rates are likely to respond to technical factors. Bond prices made a strong move higher this week, helping home loan rates improve - but now appear to be trapped beneath a tough layer of overhead resistance. What does this mean? That it will take some very “Bond-friendly” news to help Bonds muster up the strength to mount a successful attack against that ceiling of resistance, and help home loan rates improve.

Bottom line: If the news this week tends to be economically weak or negative, or otherwise helps reduce the fears of inflation - Bonds would make another run at the ceiling. But if the news is economically positive - or even moderate - Bonds will likely follow the path of least resistance they are on presently, moving lower and causing home loan rates to rise.

Chart: Fannie Mae 5.5%% Mortgage Bond (Friday Apr 20, 2007)