There are no economic reports scheduled to be released today, so the mortgage backed security market will take it’s cues from headlines, the Dow, and treasuries.  Currently our 5.5 mbs is down 7 ticks from close yesterday taking away all the gains and has now fallen back below the ceiling we have been fighting.  Yesterday for the first time in several months, we were able to close above that ceiling, but we need confirmation by closing above that level for 2 days. 

Yesterday, the treasury market had it biggest one day gains in history and mbs followed them higher but not to the same degree of improvement.  Today, treasuries have opened sharply lower dragging mbs with them.  Mortgage rates follow mbs not treasuries, but since both are fixed income investments they due tend to follow one another.  This is very similar to stocks, all airline stocks tend to follow each other but there are many days when American Airlines stock is up and Delta stock is down.  So, there are many times when treasuries move up and mbs move down and vice versa and that is why it is so important to track mbs in regards to mortgage rates.   

If you did not lock yesterday at the peak of the market you are probably safe floating for now.  I think the best we can hope for today is to close above the ceiling which might still leave us down on the day, but it would be a positive indicator.  We have several things going against us today, which are  going to make it very unlikely we improve back to the highs of yesterday.  First, the Dow has had 2 horrible days in a row, and it is due for a move higher, currently the Dow is up 150 points.  This will pull money out of fixed income and into equities.  Second, US treasuries had a record day yesterday which helped mbs improve as well, but after a record increase, it is also due to sell off some as investors take a profit.  Third, Friday has not been friendly to mbs for quite some time. 

We should have a very volatile day and as I have been typing this update mbs have improved off the lows and are currently sitting 1 tick above the ceiling we have talked about for quite some time.  And while rereading my post, mbs have continued to march higher and we are now sitting 3 ticks above the ceiling but still well off the highs of yesterday. 

We will keep you posted as the day moves along.