Remember our MBS Purgatory Graph? The space between the green lines represents a range created by the highest high before the GSE bailout (low line) and the lowest low after the GSE Bailout (upper line).

When it looked as if the world was going to explode yesterday, despite their better intentions to "get down and stay down," even MBS were coerced by bully-dog treasuries to post a small gain in dollar price. At first glance, an increase in MBS price seems like a good thing, but the spread levels yesterday told a different story. Considering the home-run hit by treasuries, MBS performance was disappointing in comparison (and rightfully so considering the failure of the bill to pass directly affects MBS).

We are opening just on the high side of purgatory right now despite higher stock futures. Furthermore, the bleeding seems to have stopped with respect to widening spreads. The 30 yr fixed FN 5.5 is currently at 100-16+ which is unchanged from yesterday's close.

To put it lightly, expect volatility today. Bush speaks in about half an hour, no doubt with something reassuring to read on the teleprompter. Market participants are looking for a rapid re-work of the bill in the hopes that the few remaining necessary votes can be garnered. But at this point, will this be too little, too late for potential MBS investors? Will the power and purpose of the legislation be too diluted to bring "enough" of the bid back into the market? In a word: yes. It will HELP, but not as much as it would have if this thing flew through yesterday. If this is a poker game where we are trying to "bluff" our opponent, yesterday's events amount to "showing our hand." It would be hard to imagine a financial system DOING MORE to drive a potential bid away. Hopefully lawmakers start to realize what's at stake.

Stay tuned...