Good Morning. Its Ground Hog Day!!!!

Weatherman Phil Connors:  "1,000 people, freezing their butts off, waiting to worship a rat"....haha what a great movie. I was making breakfast this morning and my grandfather asked me:  "Who in the hell came up with that crazy idea". HERE is the answer to your question Martin.

Mortgage rates moved sideways yesterday as both "rate sheet influential" MBS prices and benchmark yields held within the confines of their recent range. The FN 4.0 went out the door -0-04 at 97-29 yielding 4.203% and the FN 4.5 ended the day -0-03 at 100-30 yielding 4.408%. The secondary market current coupon was 4.377%. The current coupon yield was 72 basis points over the 10 year Treasury yield and 60bps over the 10yr swap rate. MBS yield spreads were tighter and my "long the basis" trade paid. The stock lever and the value of the dollar continue to influence the direction rates head, but again I remind that the upper and lower limits of the rates range (3.57 to 3.68 in 10s) have served as firm boundaries/momentum moderators.

After a significant retracement, stocks have refused to venture too far away from the all important 1087 pivot point. Whats funny about this? This is exactly where the S&P sat ahead of the November jobs report,which was released in early December. This tells you the marketplace is looking for further confirmation of improvements in the labor market.


This implies the interest rate market is wasting the week away in "wait and see mode" ahead of Friday's all important NFP read. MG provided insight on this event in the MBS CLOSE last night. READ IT!

President Obama released the FY 2011 Budget yesterday. FANNIE AND FREDDIE and their $6 trillion in liabilities were not added to the government's balance sheet...thus leaving their guarantee at IMPLIED status. I feel, given many banker's outlook for an uptick in prime rates will be on the rise as the Fed heads toward stage left in the agency MBS market at the end of march. This is a function of a widening spread between MBS yields and benchmark yields. Determining general directionality does however continue to be a function of the gyrations of the yield curve and the absolute yield levels of benchmarks. I have been reading the budget and plan to post something in the form of a housing review  later today.

Treasuries held to a tight range in below average overnight trading volume. 3.68 support was tested but not broken. We expect to see continued choppy price action ahead of NFP...this means price action will be random, yields wil bounce around between 3.57 and 3.68.

The secondary market current coupon outperformed benchmarks yesterday, aka MBS yield spreads tightened. We should be seeing some accounts take profits on those relative value appreciations today. While this may create added price chopatility, the effects should not be noticeable in rate sheets as much as in charts.   The FN 4.0 is +0-01 at 97-30 yielding 4.199%. The FN 4.5 is +0-00 at 100-30 yielding 4.408%. The secondary market current coupon is 4.377%. Yield spreads are wider vs. benchmarks: +73/10yr TSY and +61/10yr swap rate.

The 100-28 level stands out as a clear pivot point. Don't look for prices to head too deep into the 101 handle. If prices fall below 100-28, 100-20 is your "reprice for the worse" mark.

NEXT EVENT: 10AM PENDING HOME SALES. The market is expecting +1.0%

In regards to LOCK/FLOAT. The old saying "Sell the rips, buy the dips" applies. MG put it this way:

"In this low volatility environment, devoid of inspiration, with exceedingly high potential volatility in the future, considering locking and floating this week is shaping up very much like fishing in a boat drifting toward a waterfall.  Catch the fish that are easy to catch without reaching to far for the difficult ones and be prepared to get the boat back to shore in plenty of time to avoid the waterfall unless you have plans of going over it.  In other words, more cliches are in order as we look to buy low/sell high, riding rips and buying dips, floating the floatable indefinitely, but locking the lockable when rates seem decent or better, and certainly if we seem to be facing an impending reprice in the middle of the day."