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Over the past two days we have been favoring a lock bias. This bias was based more on lender strategies than price action in the bond market. While we feel benchmark Treasuries and "rate sheet influential" MBS have room to rally on, we do not anticipate mortgage rates will keep up. This is where the principles of GUTFLOP should echo in your ear. You lost a considerable amount of rebate between March 24 and April 5. We decided to wait and out and let the market stabilize from a quarter-end lack of liquidity. This strategy proved profitable. Since April 5 we have seen a slow restoration of lost rate sheet rebate. At the moment loan pricing is not far from its best levels of 2010....regardless of speculative theories which imply rates have room to run lower, you should be looking to lock up profits while they are available. You do not have to lock 'em all (if you have more than one. congrats bc many LOs have none), just don't "let it ride". If you are floating one loan...keep floating on a day by day basis. If you can make it down to a 15 day lock without sacrificing the cost of an extension...do it. In the short term, as in today, everyone should wait and see if broad based reprices for the better are offered up by lenders. ...

The market's quiet disposition this morning illustrates that most participants are waiting on Bernanke testimony. Speculative positions are set and safety has been taken just in case Bernanke offers some sort of tapebomb to the marketplace. While we are hopeful for a focus on weakness in housing and jobs, don't expect Ben to venture too far from recent rhetoric. The glass is half full, the worst case scenario has been avoided, cautious optimism, defensive exuberance, gradual exit, Fed Funds rate hikes will occur late in the recovery cycle, adjustments to interest paid on reserves will be first sign of serious exit from acommodative policy....

I've been hesitant to address this issue while I've watched it slowly unfold, but perhaps now is a good time to raise the red flag. Lackluster demand for the long bond can be viewed from a relatively clear cut point of view: with the economic outlook so uncertain, meaning there are several signs of recovery which are not supported by the underlying fundamentals, specifically the labor market and housing, why in the world would an investor want to loan their money to the government for 30 years?...

The aftermath of yesterday's duration shedding which has carried over into today: LOTS OF REPRICES FOR THE WORSE AND HIGHER MORTGAGE RATES. The FN 4.0 is currently -0-25 at 99-26 yielding 4.1233% while the FN 4.5 is trading -0-18 at 101-09 yielding 4.3443%. The secondary market current coupon is 4.244%...

MBS levels and mortgage rates take a fair amount of guidance from the shape of the yield curve. My view is that changes in the shape of the curve, and thus mortgage rates, will be driven by the timing of any move by the Fed, as much as the magnitude of the move itself....