Though MBS were not quite as thinly traded as treasuries (lowest volume since the first trading day of 2010), the picture wasn't much better. At least that which is at risk on low volume days--volatility due to the trading that actually happens comprising a larger portion of the total--was not present. Quite the opposite in fact, as the the same trend that began to emerge early this afternoon remained intact through the close. In MBS, the 101-07 to 101-10 range covered almost everything since 1030 AM. That's a quiet, boring day. I move a lower trendline down to 3.57 on the 10yr yield to show that we're going out today at an even lower yield level than Friday. So don't let the entire day of slightly worse readings fool you... The net effect for both markets was FLAT. And in the spirity of our discussion in MBS Afternoon, this is what we'd expect on a data-free Monday before data-free Tuesday (of course not so "data-free" come time for the 3yr auction). In that sense, there is not much guidance to go on, save for the price levels and tradeflows themselves. And if history is any guide, we might expect a bit of a concession to get built into the longer end of the yield curve starting tomorrow. Of course, just when you think you have things figured out, the market will do what it needs to do in order to make as many people "wrong" as possible, but at least we can say that the pre-auction concession seems to be a near certainty for much of 2009

As AQ pointed out this morning, today's slightly downward trend in MBS price began in the final hours of Friday's trading. Both MBS and Treasuries put in their best marks of the day just before 2pm, and have moved steadily downward ever since. You may notice, however, that both markets appear to be losing that negative steam near current levels. For Treasuries, that looks to be around 3.60 and for MBS, around 101-08. At the moment, the Fannie 4.5 is a tick higher than that at 101-09, but is still 5 ticks lower from Friday's closing prices. All that being said, the more important trends to watch pertain to the generally supportive range for MBS that emerged even before Friday's boomy rally. AQ pointed this out as well, and it remains pertinent at the moment. You can see on Thursday, after breaking the 101-06 level, prices returned for a test and were met with support. Then on Friday, factoring out the immediate volatility from NFP, that same 101-06 level is the first real pivot point of the morning, in the sense that it was the first potential resistance from the oversold volatility early, and acted as support immediately thereafter. Since we're so close to the mark right now, and since it suggests itself as one of the more important levels of late, I couldn't think of a better price to watch as a good barometer of potential lender rate sheet changes. In other words, if we go much lower, we'll be letting you know that potential reprices are on the way

Stocks sold off in a panicky fashion last week as sovereign debt concerns grew over Greece, Portugal, and Spain's ballooning budget deficit and rising borrowing costs. If a coordinated global recovery is to remain on course, one has to assume some sort of financial intervention from the likes of the IMF is in the not so distant future. The "sell now ask questions later" sentiment that ruled equities for the latter half of the week had strong effects on the bond market. After 10s touched the outer limits of their recent range near 3.71%, yield plummeted as flight to quality fund reallocations poured into the benchmark bond market.

After reaching as high as 101-20, MBS 4.5's are back down to 101-14. Its seems that layers of support are building at levels that would leave 4.5's at PAR after settlement next week. Far be it from me to suggest there's some sort of external force that continues to push 4.5's toward that 101-00 level, but it LOOKS that way on the chart at least. Meanwhile, stocks had recovered 100% of today's losses, though with the close still 20 minutes away, difficult to say where things will end. As for treasuries, the yield curve is reasonably unchanged on the day save for a little bulge in the belly (5's and 7's leading the pack by 2bps). All told, the stock lever did what we wanted it to do in the case of a stock sell-off today, and as stocks have rallied, little of what we wouldn't want it to do! The resiliency of bonds and MBS continues... Normally, after a 7 tick loss in MBS, we might start talking about reprices for the worse as an outside possibility, but that's such an insanely remote possibility, that it only makes sense to act on it for deals you're already planning on locking today, AND at lenders who you already feel have priced in a ton of the gains. If you look at the bigger picture for stocks: and bonds the situation doesn't seem to warrant any panic whatsoever... We'll let you know if if tsy yields get much higher than 3.56 in the next hour and change.

Now that the jobs report is behind us, the marketplace will put all focus on sovereign debt anxieties abroad. Part of the reason for panic has to due with the size of deficits in specific EU countries and their inability to print new Euros to guarantee the timely repayment of debt they issue. The US government can print dollars to cover deficits and back the AAA rating of their debt...Greece, Spain, and Portugal cannot do that, so when they attempt to raise money to fund their deficit spending, bond buyers demand a higher yield to compensate for added default risk. This increases the size of the deficit and raises investor doubts about those country's abilities to repay borrowed funds. This creates a downward spiral which usually requires some sort of bailout to correct. In this case, one has to assume the IMF is planning on intervening. In my opinion, this is a crisis of confidence. The market is making matters worse by pricing a "worst case scenario" into debt valuations. Some sort of headline news events is coming that will either make this worse or all better.

Gotta love Jan and Feb... Fans of rhetoric finally have a window to use the phrase "of the year" and get off the hook by citing its literal accuracy. Even if MBS are only at two month highs, MBS ARE STILL AT TWO MONTH HIGHS! For reasons such as this, locking in upon determining a reasonable amount of the gains were passed through was the default advice. Of course with the Category One Facemelter characterized by the 16 tick gain, we wouldn't expect to see ALL those gains passed through to rate sheets, especially a day before NFP, but if you got even half of it, it was like a glorious and unexpected gift. And EVEN IF RATES GET BETTER TOMORROW, I don't remember the last time we had the opportunity to lock the best rates in nearly two months on the afternoon preceding NFP. So in that sense, in exchange for removing the risk of any economically salubrious effects tomorrow, you get what is, in essence, free money. Congratulations and Cheers! Additionally, the triumph was made all the more glorious for those on a fence last night who heeded our closing paragraph: "don't fear the back up in tsy's as if it's making a fundamental comment on the future direction of rates. Sure, everyone that ever mentioned the words "Technical Analysis" might be left below when the capital markets rapture happens, but until then, believe in the inflection and ye shall be saved (from jumping the gun on locking prematurely if we fail to move much above that inflection

MBS and Tsy's continue to trade at vastly improved levels versus yesterday. the 4.5 is up 15 ticks at 101-09 and has been showing some signs of conceding to resistance at 101-10. Could be "it" for the day, but we shall see... The 10yr Tsy battles similar fizzle as it approaches 3.60 yield, over TEN bps better than last night's going-out levels. Major stock averages are all down over 2%, with the S&P well below recent technicals at 1071 and change. I don't think I could say the following emphatically enough: YOU'RE LOOKING FOR PRICING THAT TAKES AS MUCH OF THESE GAINS AS POSSIBLE INTO ACCOUNT, AND YOU MAY HAVE TO WAIT FOR LATE IN THE DAY! Many of the lenders who hit my email have recently been sending out updates right after 5pm eastern, some almost like clockwork. That's a longer than usual time to have to wait for reprices on strength. It's also entirely possible that smart people work at these lenders who realize that tomorrow morning could go either way and all today's movement constitutes is a movement from one end of a range to another, motivated by trouble in stocks. So if you have access to more than one lending source and have to do some serious comparison shopping today, you'll find some lenders may have more of this rally priced in than others. Assuming that your decision isn't affected by non-monetary considerations of lender selection (are there any other kind? pf? anyone?), pulling the trigger tonight looks MUCH better