Cupid's arrows might have been flying around everywhere last week - but little love came calling for the Bond market. First, Retail Sales for January were far better than expected - which was good news for Stocks, but as money flowed into Stocks, pulled money out of Bonds and caused Bond prices to move lower. Next, Fed Chairman Ben Bernanke gave it to us straight from the heart, as he testified that the Fed would keep the door open to more rate cuts, which worried Bond Traders about the risk of more inflation ahead. And unlike the media seems to believe, cuts to the Fed Funds Rate generally cause home loan rates to rise, not decline. Why? Because Fed Rate Cuts can spur on more inflation, as it becomes less expensive to finance business and personal purchases. And as a result, inflation erodes the value of the fixed return provided by a Bond - so in the face of inflation, Bond prices fall, and home loan rates rise.

Finally, Moody's credit rating agency downgraded FGIC - one of the very largest Bond insurers in the world. This is another concern for Bonds, as the downgrades of Bond insurers in turn threaten the ratings of the Bonds they insure. If the added safety from insurance on Bonds is in doubt, the yield or rate on those underlying Bonds must increase to compensate investors for the additional risk. All in all - a tough week for Bonds and home loan rates.

After a closed market on Monday, all of the coming week's economic reports will be delivered on Wednesday and Thursday - but don't expect that any volatility will be limited to those days.

The most recent read on inflation will come via the Consumer Price Index, being reported on Wednesday alongside the latest Housing Starts and Permits data. And of particular interest - the "Meeting Minutes" from the last Federal Reserve meeting will be released as well. These Minutes give the inside commentary between members - and remember, Dallas Fed President Richard "Loose Lips" Fisher was not in agreement with the most recent cut to the Fed Funds Rate. His seemingly uncontrollable remarks regarding his concerns over inflation have rocked the markets of late, with Mortgage Bonds losing 187 basis points since his tirade on February 7th - that translates into about .375% higher for home loan rates. Bottom line - the inflation data and Fed Meeting Minutes could be real market movers.

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