Obama did indeed win, but MBS certainly haven't lost.

5.5's gained nearly 2 points and 6.0's gained well over 1 pt. This AM, they are opening positively again, despite what the veteran LO down the hall says as he watches the 10 yr ticker. Just one of those days I guess, where tsy's and MBS are moving in opposite directions (at least for now). What's that? You're not comfortable chalking that up to chance? Oh, well, since no one else is probably going to mention it, it's all about funding. Not "funding" as in what you have to get your gift baskets and follow up letters ready for, but "funding" as in "Yo! MBS Buyer Dudes! Where you gonna get money to buy MBS?!"

Ah yes... Indeed that has been the rub for many of these past weeks. But my friends! The Credit Crisis! She Thaws! She Thaws! That's right, the big boys need credit too, as you well may be aware. Among the several prominent market participants in MBS, even the ones with the strongest cash positions still utilize funding channels. Depending on the flavor of the month, these can vary, but when a buyer of MBS "puts it on the credit card," the little disclosure page on their statements will usually be based on LIBOR. Fannie and Freddie, too, auction their unsecured bonds for funding, but the price movements of those are not as impactful as those of LIBOR. Basically folks, the lower that APR on that imaginary credit card statement (yeah, sorry, that wasn't a real disclosure page I was talking about), the cheaper the FUNDING available for MBS buyers. From there, the chain of events should be self-explanatory from a logical sense: cheaper money = easier to buy "stuff."

So when you see what is now a 8 tick rally after the first 15 minutes of MBS and see the 10 yr tsy unchanged, you will know it's because LIBOR (in its many various forms) is cheaper today. We track swap spreads which in the scope of available research over the past few years have been shown to be a better predictive basis against which to judge MBS, as opposed to the universally accepted risk-free treasuries. At any rate (pun intended), a swap spread (although it can refer to other things) is the yield different between a LIBOR bond and a US treasury bond. Swap spreads are improved all across the board. The massive FTQ (flight to quality) buying seen since LehMerrill is shifting slowler but surely back to slightly risker "spread products."

Swap Spreads are a bit of a forward indicator of MBS action, or at least we've taken note that they have been more so in recent weeks as liquidity was tapped. So we are seeing an extension to yesterday's facemelting rally so far as Swap Spreads continue to tighten (quite quickly at the moment too). Sorry for all that typing. We know any other decent MBS service will already have explained this to you....

What do you mean "we're the only one?" That can't be... Can it?