Mortgages have given back some of their intraday gains as TSY yields have fallen and MBS/TSY spreads tightened. This is normal behavior and no reason to worry about a change in MBS sentiment....when spreads gap out a few ticks (32nds) buyers will return to the market. This morning we indicated that we expected originator supply offerings of MBS to diminish today...this has indeed been the case.

Market demand remains healthy as the Federal Reserve is no longer the only market participant supporting production MBS coupons (for now at least). Remember: increased prepay fears and higher absolute prices of MBS will serve to moderate "up in coupon" strategies. Increased mortgage apps are contributing to heightened prepayment worries...good job borrowers!

In after hours trading....

APRIL FN30_____________________________

FN 4.0 -------->>>> +0-04 to 100-07 from 100-03

FN 4.5 -------->>>> +0-05 to 101-27  from 101-22

FN 5.0 -------->>>> +0-04 to 102-28 from 102-24

FN 5.5 -------->>>> +0-03 to 103-17 from 103-14

FN 6.0 -------->>>> +0-02 to 104-09 from 104-07

APRIL GN30____________________________

GN 4.0 -------->>>> +0-03 to 100-11  from 100-08

GN 4.5 -------->>>> +0-05 to 101-31 from 101-26

GN 5.0 -------->>>> +0-02 to 103-11 from 103-09

GN 5.5 -------->>>> +0-04 to 103-27 from 103-23

GN 6.0 -------->>>> +0-04 to 104-13 from 104-09

After a brief panic following yesterday's weak 5 yr Treasury auction, the market is feeling a little more confident after a better turnout at today's 7 yr Treasury auction. Today's auction demand has provided reassurance that investors remain willing and able to  provide the funds necessary to finance our growing budget deficit. The biggest sentiment indicator in the world illustrates this change in "feelings" quite well...

Yesterday markets promptly liquidated their holdings at 1 pm when UST5YR auction results were released. Today markets rallied at 1pm following the release of the UST7YR auction results. My point...equity markets are trading with a nervous edge and long term convictions are not moderating "knee jerk" reactions. It's all about "feelings" at the moment since the uncertain economic outlook has made it impossible to accurately determine the present value of future company earnings.

The Fed just released their weekly MBS buying activity report....

In the five trading sessions between March 19 and March 25 the Federal Reserve participated in $47.2 billion MBS transactions. Net purchases totaled $33.150 billion which equates to an average of $6.6bn per day. In the five days prior the Federal Reserve spent a total of $19.7 billion which is an average of $3.9bn per day.

This brings the tally to $269.9 billion Agency MBS purchases by the Federal Reserve since January 5, 2009.  Still $980 billion left to buy MBS...see what we mean by "demand for MBS remains healthy".

55.7% in Fannie coupons, 40.6% of the net purchases were in Freddie coupons, and just 3.8% in "flight to quality"  Ginnie Mae coupons.

59% of the net purchases  was in 4.0% coupons. 38% of the net purchases were in 4.5% coupons.  Dollar roll transactions were focused in Fannie 5.0s, 5.5s, 6.0s.

It is of no surprise the Fed spent more money last week. Remember how many loans you locked last week? The Fed continues to show they intend to support production supply of MBS. As I do after each Fed Buying report...thank you Federal Reserve!

A reprice for the better wouldnt be a surprise by the way.....