Good Morning.

So we got 22 inches of powdery snow this weekend...give or a take whatever the consistent wind drift added or redistributed over the course of the storm. 

My dad, 82 year old grandfather (he is a bad bad man), and me spent the majority of the weekend playing follow the leader with snow blowers and shovels....by Sunday morning  the driveway  was finally visible, unfortunately it was the cleanest thing in the neighborhood as the roads are still brutal, especially for the Stepford Wives of Severna Park who decided to make a trip to Safeway (they boosted the bottom line of every local tow truck service).

Me personally, I feel like I went 15 rounds with the abominable snowman..but it was worth it.  My nephew and I had a three hour sledding session that will definitely be one set of memories I choose to keep close.

From an economic perspective, the blizzard closed almost all unneeded stores and limited last minute holiday shopping for many...but boy did it do wonders for anyone who had a plow to push snow or a wrecker to drag rear wheel drive cars from roadside ditches. Hopefully the income earned helps Christmas be a little more cheery for families. I wonder if it did more good than bad? 

Onto the market....

Not gonna lie, I did not do much preparing for the week ahead (see excuse above). While I will likely spend the morning playing catch up, I am not sure it even matters. The number of "out of office" replies we have seen this morning speaks volumes to the trading action we expect to watch this week.

To be as clear as possible....last Friday was most likely the last day of meaningful trading flows in 2009.  The term "CHOPATILITY" will now define directionality. If you are a new reader and not accustomed to seeing the term "CHOPATILITY"...it implies the market is being moderated (or not) by erratic trading flows and trendless price action. There will be no rhyme or reason for rips and dips. Sellers of size will not be met with buyers of size...anyone looking to move large blocks of paper may find their offers being HIT a bit harder than usual. (A seller OFFERS a security, a buyer BIDS. Offer getting hit = not getting what you want for it = market trades lower).  Perhaps local professionals will be out surfing the short term movements...but Globex will be quite quiet. (Locals = Pit Traders. Globex = Electronic).

Late last week I was somewhat encourage by a modest recovery rally in rates. However, if you noticed I was always sure to point out the influence of real money "buying at the lows" which was then followed by a round of SHORT COVERING...which helped stabilized selling and generate short term rebounds in rates. The one unknown:  Were real money buyers only buying on the dips? At what level would short covering take place if "real money" wasn't stepping in to bargain buy?

Looking back on it...it looks like my fears were worthwhile...while "black box" traders (ie: trader's who use quantitative models for buy/sell signals) are indeed still covering short positions...they are doing so at higher yields and lower prices...allowing the market to move significantly cheaper this morning...pushing RATES  NOTABLY HIGHER.

The 3.375 coupon bearing 10 year Treasury note is  currently -0-18 at 98-00 yielding 3.615%.

The FN 4.0 is -0-14 at 98-02 and the FN 4.5 is 0-10 at 100-29.

From a loan pricing standpoint. I recall this time of year as being one of my favorite for determining rate sheet rebate. I viewed it as so...

Most borrowers have already locked in  and many have actually already closed. Who wants to deal with a loan closing at this time of year?  My main goal was to limit the amount of work I had to do over the next 10 days. I made sure all my positions were square, I double checked pricing, hounded post closing to get my files shipped, and started working on monthly P&Ls. My eyes were generally off the market as my mindset was " GET WORK DONE, LEAVE THE OFFICE ASAP". Processors, UWs, Closers, Shippers, and Accounting were all in the same boat. (Compliance always cared)

This was not an originator friendly environment. To avoid extra work and disruption...I always baked a few extra bps into my rates. My innate sense of capitalism took over. This sentiment was shared up and down the mortgage pricing supply chain. Not matter how the market was moving....primary/secondary market pricing spreads were getting wider.

Plain and Simple: Don't be surprised or angry if rate sheets start to get more expensive...regardless of how the market behaves.

PS: This capitalistic approach should also begin to play out in the interbank lending market. LIBOR should start to tick higher.