For the time being, it looks like the "top is in" for stocks and tsy yields.  At least the optimists in us would hope that's the case.  The chart illustrates the turn for stocks and bonds, which has allowed MBS to avoid getting pulled lower, even though it may be tough to go appreciably higher:

In addition to the turn around, helping MBS to eek out some slight gains at the moment is a somewhat limited supply from originators who make up half of today's field of dreams (If you build it, they will come?), as originators do the building and the Fed does the, uh, buying.  Aside from these entities, not appreciable participation from other participants, though real money is said to be progressively more interested.

Traders got what we might consider a supportive report from analysts at FTN Financial which, in a nutshell, suggests "down in coupon" biases.  AQ and I have talked a few times in recent weeks about a sort of "lull" that would occur in terms of prepayment fears actually impacting trader psyche.  More simply, everyone expected prepayment speeds to increase as rates dropped, but there was also an expectation for a window of time before the brunt of that movement in which traders could profit from a short term fade (move up in coupon for better relative value as the lemmings head down in coupon).  FTN is more or less, calling an end to that tactical fade, suggesting the Fed cannot be beat, so they should be joined in the lower coupon realm.  Of course a compenent of this is the advice to reduce a portfolio's prepayment exposure as data point after data point reiterate the Government's committment to get borrowers out of those higher coupons in one way or another.

All in all, that would be good for MBS and us on the origination side of the biz, assuming a stable basis persists from benchmarks like treasuries and swaps.  But there is a bit of a mitigating factor which AQ covered well this AM.  Prices are simply in a high range for MBS right now.  With the 4.0 over PAR and the 4.5 over a whopping 102-00, there are OTHER problems to consider besides simple profit-taking on the secondary market.  Yes friends, at these price levels, our old nemesis, the primary market may indirectly catalyze a mild down cycle for MBS.  How so?  Basically, these high dollar prices combined with the continued "working out the kinks" of DURP et. al. mean significantly increasing originations, locks, etc...  Whatever the case, that amounts to SUPPLY for MBS.  And it's not like the Fed won't be happy to buy it, but more supply is more supply, and if it occurrs concomitantly with these higher dollar prices, we have a double whammy from both the primary and the secondary market.  In other words, both will be sellers.  This phenomenon will likely bear out sometime between now and the end of the month, or possibly just after, which would make it an ideal time frame to coincide with our longer term technical chart.   Let's discuss those more long-term and predictive issues later.  A few more items for this afternoon to contend with.

The National Association of Home Builders was out this afternoon with their index which showed a marked improvement.  Overall, it was up from a 9 to a 14 which a significant improvement coming from expectations over the next 6 months which rose from a score of 15 to 25.  You can see that we haven't been in double digits on the overall index since October of last year.  This sort of data synergizes with the supply-ramp-up discussed in the previous paragraph.  Again, nothing is going to murder MBS and shoot rates back up to 6% any time soon, but in the subtle swings between 4.5 and 5.25, these supply and dollar price issues could come into play.

Speaking of supply, the Treasury was out today saying it "ain't as high as it should be."  So maybe that's not a direct quote...  Still, they did release survey results showing a DECREASE in lending in February among the 21 largest recipients of federal money.  The median decline was 2.0%.  Not huge, but a head-scratcher no doubt for many a lay-person wondering "where'd that money go then?"  The report has a silver lining as it wasn't exclusively pertaining to mortgages.  Some banks surveyed actually did increase their mortgage lending.  Interestingly enough, the survey showed BofA actually increased home equity lending.  The surprises never cease...  BB&T and Fifth Third were two of the other firms noted to have increased lending.

Still to come today we have the beige book at 2pm, which we'll cover in whatever detail is justified.  The central bank will also be announcing their buyback schedule of treasuries over the next two weeks which, if deviant from expectations could sway treasury markets. 

If you see appreciable gains, it's never a bad time to lock near these market highs, but primary secondary spreads do remain intractable.  There is a bit more upside potential, but much of that will depend on stocks and bonds as we cannot wander too close to our benchmark before selling is blatant reality.  Stay tuned.  More lock considerations will be discussed ere the day is done.  For now, intraday floats seem safe and we'll update you if that changes, when it changes.

Since 5pm "Going Out" Marks....

FN30----------->>>>PRICE-------->>>>CHANGE __

FN 4.0 -------->>>>100-09-------->>>> +0-01

FN 4.5 -------->>>>102-03-------->>>> +0-01

FN 5.0 -------->>>>103-11-------->>>> +0-01

FN 5.5 -------->>>>104-06-------->>>> +0-00

FN 6.0 -------->>>>104-28-------->>>> +0-00

GN30________________________________

GN 4.0 -------->>>>100-14-------->>>> -0-02

GN 4.5 -------->>>>102-11-------->>>> -0-00

GN 5.0 -------->>>>103-29-------->>>> -0-02

GN 5.5 -------->>>>104-14-------->>>> -0-02