The TBA MBS market is quiet as we close out the month and Q1 2009. It appears all positions have been taken and balance sheets adequately "dressed up" (prepared) for quarterly review.

Change Since 3pm Closing Marks...

FN30_______________________________

FN 4.0 -------->>>> +0-00 to 100-17 from 100-17

FN 4.5 -------->>>> +0-01 to 102-04  from 102-03

FN 5.0 -------->>>> +0-03 to 103-06 from 103-03

FN 5.5 -------->>>> +0-03 to 103-25 from 103-22

FN 6.0 -------->>>> +0-01 to 104-14 from 104-13

GN30______________________________

GN 4.0 -------->>>> +0-04 to 100-21  from 100-17

GN 4.5 -------->>>> +0-04 to 102-09 from 102-05

GN 5.0 -------->>>> +0-03 to 103-22 from 103-19

GN 5.5 -------->>>> +0-03 to 104-02 from 103-31

GN 6.0 -------->>>> +0-03 to 104-16 from 104-13

(Ginnie Mae coupons are trading with less credit risk than FN/FG coupons...overseas investors prefer explicit guarantee...Gov paper serves as FTQ outlet in times of increased uncertainty)

Treasury yields are leading the way for a lightly traded MBS market today. When benchmark yields (TSYs) go lower, MBS will follow. When benchmark yields go higher, MBS will follow. In most cases MBS is only taking a directional lead from TSYs though, without MBS specific headline news we have yet to see mortgages rally or sell off to the extent that the yield curve steepens or flattens. More follow the leader (spread play) while the mortgage market continues to adjust prepay expectations. About prepays and its relation to "up in coupon" vs. "down in coupon"...

We have seen a shift in the "up in coupon" spotlight. Traders who were once chasing profits by creeping out to 6.0s and 6.5s now deem those coupons as too risky to meddle in...instead the new "cuspy coupons" (less prepay risk...but still risky) are 5.0s and 5.5s. Prices of fatter coupons are just too expensive and much more sensitive in terms of relative value. However it should be noted that market models are placing a wide range of prepay assumptions on these coupons which effects the duration and relative value performance of MBS coupons...so some market participants who deem borrower behavior to be slower than expected may find justification to venture out into that RISKY territory within the stack. Not much of a concern for loan officers when you consider the Federal Reserve's demand side support of mortgage originator's production coupons.

Speaking of production coupons....Month end is a period of high anxiety for loan operation centers.  Processors, underwriters, closers, and shippers will be in super stress mode as producers and P&L preparers place a bit more pressure on support staff to ensure the expected closings are completed...with a smile.

Immediately following the chaotic end of month environment, support staffers and originators will look to take a breather while back office personnel prepare commissions, clear stips, and  clean warehouse lines. If you are wondering why your originator has been under stress or perhaps even hard to reach...it's because you may have submitted your loan application at a time when the industry is preoccupied with month end activities. No worries though....

Once lenders clean up their messes and reorganize pipelines...pricing patterns will have the opportunity to normalize and primary/secondary spreads will tighten a few bps (rate sheets will more closely track MBS prices).  Given the fact that lock desk activity has been considerably quiet of late and MBS demand outweighs supply....MBS's only real nemesis at the moment appears to tape bombs.

Check out Vic's MORNING POST for econ wrap and an update on day over day rate sheet changes...