Looks like the market is favoring the flight to safety side of the "conflicting view" story I described in the OPEN.  The stock lever has engaged in an originator friendly fashion and lenders are due to reprice for the better as a result.

The Greek saga has evolved from a game of pin the tail on the donkey to....??? I'm not sure how to describe it anymore. Thank an S&P downgrade of Greece and Portugal for better mortgage rates. READ MORE

The chart below says it all...stock futures lower, TSY futures higher. 

The S&P is now -1.59% at 1192.  The Consumer Discretionary index is one leading all others lower. That is odd given the fact that March Consumer Confidence just printed at 57.9 vs. the prior read of 53.5.  The expectations index increased to 77.4 in April, the strongest showing since October 2007, from a revised 70.4 in March. The present situation index advanced to 28.6, the highest since May 2009, from a revised 25.2.  The "jobs hard to get" index fell to 45.0 percent from 46.3 percent, while the "jobs plentiful" index increased to 4.8 percent from 4.0 percent.  The dip in energy and materials stocks is a function of a huge dollar index rally (thanks to the Greek/Portugal debt downgrade).

Either way the 3.625% coupon bearing 10 year TSY note has rallied through resistance at the 3.71% mid-range pivot and is now +0-31 at 99-15 yielding 3.688%. This also happens to be the 50% retracement of the Dec.21 sell-off...


 Zooming in on the above highlighted trend channel, you can see that 10s rejected what seemed like confirmation of a bearish breakout. This is not based on a specific trade bias as much as it is a factor of a rush to risk averse assets.

FN 4.5 prices are approaching face melting status, currently +0-20 at 100-25 yielding 4.414%. The secondary market current coupon is 4.394%. The CC yield is however not keeping pace with the TSY rally, "rate sheet influential" MBS coupon yield spreads are wider as the mortgage market needs willing buyers. The CC yield is now +70.2 basis points over the 10 year TSY note yield and +69 basis points over the 10 year interest rate swap. Implied vols are rising as traders are buying volatility to protect positions against downside (selloff) risk. As prices rise we should be worried about real money accounts (who hold MBS outright as opposed to buying the "basis") profit taking...which would be very bad in this "bid wanted" environment. 

In regard to the Goldman Sachs hearing....the Senate committee is asking questions and the panel is finding creative ways to sidestep responses. Its been very frustrating for everyone involved.  I would like to point out that the deliberate speaking style of Sen. Susan Collins is making me feel like a pre-schooler.

The committee chair keeps reminding the panel that they will not end the hearing until all questions are answered. The problem is...I CANT STAND LISTENING TO THIS NONSENSE ANY LONGER. So even if the witnesses provide the answers everyone wants to hear (what do we want to hear???)...many folks will have already changed the channel.

$44 billion 2 year notes at 1pm.

For now this rally is built of glass...

re: mortgage rates

Don't get frustrated if rate sheets are not as aggressive as they were the last time the FN 4.5 was bid over 100-20. Secondary market current coupon yield spreads are wider now vs. then. On top of that, falling rates increases fall out risk and hedging costs for lenders. This is what we meant when we said mortgage rates would not keep up with a TSY rally. If the rally holds, lenders will be slow to pass along gains.