Despite a December Existing Home Sales report which showed a drop of 16.7% from November levels, the stock market was able to stop the bleeding from last week and bonds worsened slightly. The December Homes Sales report was shrugged off due to high activity in November due to earlier expectations of the tax credit ending. Bond investors are nervous for other reasons as well. Below are the key sources of concern:

1) The confirmation hearings for Fed Chair Bernanke for a 2nd term (bond investors want him to be reconfirmed and it is now generally expected that he will be).

2) Questions about foreign demand for $118 billion of US Treasury auctions this week.

3) Nervousness about the 2-day Federal Open Market Committee (FOMC) post meeting statement, particularly as to whether the Fed leaves open the possibility that they will extend the 1.25 Trillion mortgage purchase program which is scheduled to end in March.

4) Concerns about technical indicators that show the bond rally of the past 10 days may have run its course.

Below is a recap of the economic calendar for this week:

Monday, January 25, 2010

December Existing Home Sales – dropped to annual pace of 5.45 million vs expected to drop to annualized pace of 5.9 million.

Tuesday, January 26, 2010

November Case-Shiller 20-city Index – expected ytd down 5% compared to down 7.28% YTD in October

January Consumer Confidence – expected 53.5 compared to 53.3 in December

November FHFA Home Price Index

US Treasury Auctions $44 billion in 2 year notes

Wednesday, January 27, 2010

December New Home Sales – expected annualized 368,000 vs November annualized 355,0000 (but most analysts are now revising their forecasts lower)

Federal Reserve Post-Meeting Statement – expected no change in short term rates. There is uncertainty about what the Fed will say about their mortgage purchase program scheduled to end in March and the other steps they have taken to pump liquidity into the market.

US Treasury Auctions $42 billion in 5 year notes

Thursday, January 28, 2010

Initial Jobless Claims Week Ended 1/23/2010 – expected down to 455,000 from 482,000 from the prior week.

Continuing Jobless Claims Week Ended 01/16/2010 – expected up to 4.615 million, up from 4.599 million from the prior week’s report.

US Treasury Auctions $32 billion in 7 year notes

December Durable Goods Orders – expected up .2% vs November up .2%

Friday, January 29, 2010

4^th Qtr Advance GDP Forecast – expected up 4.6% vs 3^rd Qtr up 2.2%

January Chicago PMI – expected 57.4 reading vs 58.7 in December

January University of Michigan Consumer Sentiment – expected 73.0 reading vs 72.8 initial estimate in mid January