A rare departure from the behind the curtain to share some personal thoughts on Fed Day. Keep in mind that the blog is written by a human... Me.

I rarely include opinion, so the disclaimer here is that this has an uncommonly high level of opinion and shouldn't be used to make decisions that will affect your finances. Take them for what they're worth.

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All in all an underwhelming day for MBS. We did not see nearly the level of choppiness or volatility we normally see. When I first started watching live data on Fed days, a day like today would have freaked me out, but compared to past fed days, it was pretty tame. We have usually seen a sell-off following FOMC announcements of late, and it's more the nature of the sell-off, how it stops, and where it stops that is more informative that the actual numbers.

After all, at the close, we were even on the day, and with 15 minutes left in trading, we look to be going out at even levels as well. Think of this morning's positivity as a base-runner taking a reasonable lead off in case the opportunity to steal a base came up. It did not and so our base runner retraced his steps to where he has rested the past several times, right with the 5.5 coupon at 97-21. The more this happens, the less likely we are to break that level to the downside.

Folks, myself included, seem to want TARP to hit overnight and bring all time low rates. It probably will, but this is the federal government we're talking about here. it's going to take time. Furthermore, the preliminary assessments of the programs efficacy are moot at this point because the funding and available tools have not yet had a chance to stretch their legs or even come remotely close to working their way through the credit markets. Treasuries remain in a steepening pattern for the yield curve, which is slowly but surely incentivizing short term money to be in favor again. We've gotten the yield on the 30 year back up to 4.23. This is not great for mortgages in the immediate term as it removed "duration" from favor. And in MBS, duration is most present in the lower coupon area (since they pay off slower). But, credit, although nowhere near where we'd like it to be, is slowly but surely returning to the markets. MBS will be one of the last places to see this due to the nature of year end balance sheet dynamics as well as the cycle and sources of "funding." That's a fancy way of saying that LIBOR has to get low enough before buyers of MBS can get into the market in enough numbers to make a difference.

After that, momentum plays a roll too as the lower rates stimulate activity in the mortgage market creating more loans to be turned into more MBS to be bought and sold. When that occurs it will truly be an alignment of the stars. But just because I think it will occur DOES NOT mean TOMORROW! EOY (end of year) balance sheet concerns are a MAJOR hurdle, not to mention the fact that TARP will only slowly but surely works it's way through the market. Things should be lining up come new year and especially in February (give or take).