- CNBC is reporting that Fed may have an announcement regarding emergency bailout measures for AIG that they were not willing to announce during the scheduled FOMC announcement.
- From a technical perspective, the actual market close, which occurs at 3pm, saw a price level of 100-30. This is above both the 4 and the 8 day moving average. It is also above yesterday's low of 100-28, and indeed when the market today dipped below that level, it was never for more than 60 seconds. So we have the rare and delicious occasion of having several technical indicators coincide right in a 2 tick wide zone from 100-27+ to 100-29+. The more techs that back it up, the firmer of a floor it becomes. However the firmest floor would be 100-16 to 100-19 which is the lowest range the 5.5 has traded in since the Frannie Bailout. Whatever the case, at 100-30+, things could be worse.
- Spreads have tightened up quite nicely this afternoon, indicating that some risk tolerance re-entered the market (which is obvious in viewing equities averages). To whatever extent the much-speculated-about AIG news occurs and is an assuaging force for risk, spreads could tighten further. (spreads have blown out so far since "black monday"--not to be confused with the 7 day older "green monday"--that one would not really have known there was a frannie bailout")
- Crazy Cowboy talk from AIG's former exec Diamond. Who knows what that idealistic vigilanteism will lead to?!
- Fed uses word "significant" rarely, but used it twice today in reference to strain on financial markets, and to upside risk for inflation. In one kind of way, the former could be good for MBS, but since "financial markets" probably means someone will be playing the blame game with mortgages again, it's somewhat of a wash. Inflation is never good news, but it's MUCH worse news for treasuries whose rates are much more susceptible to the erosive forces of inflation.
But, let's throw all that out the window. We soldiers of MBS fortune, we devotees of "the curve," we founding members of the Float Club must not forget, that not 10 days ago, the director of OFHEO and the Secretary of the treasury explicity stated a goal to increase buy-side demand for MBS. Too, with recurrent panic about liquidity and the extra crunchy credit situation, MBS represent an excellent vehicle through which the government can foster market liquidity. Everyone seems to have forgotten that these two giants of policy actually USED THE WORDS "Mortgage Backed Securities!" This is uncommon! For them to blatantly state a goal to increase the bid from Asia and others is a big deal that HAS NOT YET played out. Even if we have to endure some downticks in the short term, expect to hear more from Uncle Sam regarding that ostensibly urgent announcement, which now seems to be all but ignored--passed over for panic on the implications of Lehman, MS, and AIG.
Keep Ye Thy Candles Of Faith Burning, Float Club Brothers.
As for short-termers.... What are you still doing here? You had permission to lock and go to lunch, like, an hour ago.
Whatever boat you're in, stay tuned for potential AIG news after the bell.
(by the way, in the last 25 minutes, the 5.5 has moved nary a tick holding steady around 100-30).