Yesterday, in anticipation of Bernanke's testimony, members of the Fed were quoted in saying that "Because the outlook is uncertain, we are uncertain which way(up or down) the next change will be.  It will take policy makers 4 to 5 months to know whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing stimulus".

The Fed simply isn't sure about the path of the economy at this point.

Today's testimony highlights showed that there will be no slowing in Federal Reserve accommodation.  Bernanke warned that tapering down stimulus would not be beneficial for the economy, citing that premature tightening of monetary policy would carry a substantial risk of slowing  or even ending the economic recovery and cause inflation to fall further.

Bernanke described the US jobs market as improving, but still "weak overall".

In the Q&A portion, Bernanke said tapering is a possibility, but only that.  Should labor improve, while inflation pressures remained low, the Fed would end its asset-purchasing program.  Even if the Fed begins to step down its pace, the move would not automatically point to an automatic complete wind down of the program.  If recovery were to falter, the exiting strategy would be delayed.

Today's release of Existing Home Sales showed an increase of 0.6%, with sales of single family homes up 1.2%.  In addition, the median time for a house to be on the market fell dramatically to 46 days.

Sales of existing homes appear to be hitting stride, however the threat for May sales is the sudden increase in mortgage rates has lead to sudden declines in mortgage activity.  According to today's MBA Purchase Applications release, the purchase index decreased by 3% and the refinance fell by 12%. 

At 2:00pm, the minutes from the 5/1 FOMC meeting will be released.

The 10 yr. note has swung drastically today in reaction to all of the economic data, opening at 1.93% dropping off to 1.89% and hitting the daily high of 2.05%.

Today's rates will continue to be highly volatile.

- Michael Corboy