The yield curve and swaps are still outperforming MBS today. As spreads have widened the Fed has increased its participation rate in MBS markets. As expected "trading the drop" ( rolling your commitment) isnt getting much love...

Fn 4.0-> -0-02+ to 101-04+           Gn 4.0-> +0-03 at 101-00

Fn 4.5-> +0-01 to 102-18+            Gn 4.5-> +0-01+ to 103-11

Fn 5.0-> +0-02+ to 103-14            Gn 5.0-> -0-03 to 103-31

Fn 5.5-> +0-02+ to 103-24+          Gn 5.5-> -0-04 to 104-04+

Fn 6.0-> +0-01+ to 103-31+          Gn 6.0-> +0-00 to 104-04

Reprices for the better have been reported.

We are tracking Fed buying and the bandwagon effect...there is definitely some merit as to where the spending has occurred...where there is value! Last week the Fed was able to kill two birds with one stone...meaning they promoted lower interest rates all while getting a good deal! The Fed provided a strong bid for 4.5 Freddie's last week, this week now that prepays are not as widespread as previously anticipated we expect a short period of "up in coupon" Fed buying (Freddie 5.0s look like a good target). Not to worry though...the Fed is equalizing trade flows across the stack...the integrity of the float boat's hull remains intact! That said this MBS market is turning into a short term traders dream...high liquidity and a government guarantee. Short term profit taking wasnt worth the risk a few months ago...nowadays MBS liquidity is so high that churning your commitments is a profitable and relatively safe strategy.

Translation: the MBS market will continue to push down in coupon...rates will go lower with minimal retracements along the way. That is until a stable supply of closer to current coupon loan packages hit the market...down in coupon has stall out at some point!

To illustrate where the focus is here a chart of the Jan. FN 4.0 and the Feb. 4.0...checkout the noise in the Feb. coupon...