This is higher than expected.  MBS market is down slightly on the news.  More to follow.

Update: 10:05 EDT:

So far the MBS market is digesting the NAPM data well.  It's always interesting to see the market's reaction when a particular report comes in better than expected yet still negative (anything under 50.0 = contraction).

 The 5.5% coupon is holding at 101-01.

Hank Paulson is speaking live right now regarding the Treasury Dept's "blueprint for regulatory reform."  In general, this should not damage MBS today unless something unexpected is announced or the stock market absolutely loves the verbiage, thus drawing some money out of the bond markets.  Even then, if fixed income investment does decline on the day (treasuries and MBS, and others), it's possible that MBS will decline less than T-Bills.  The reason?  The agency that Paulson is proposing to empower, the Federal Reserve, has recently been a "buddy" to MBS, taking actions to reinforce the stability of the financial companies or dealers that securitize and trade MBS.  

However Paulson just said "this will not be resolved this month, or even this year," going on to say that the market must stabilize before any sweeping actions, such as these regulations, are implemented.  

So it's: So Far So Good for MBS today.  As we discussed last week, when the MBS ends the day moving upward, especially if it's been a more or less linear upward curve, which it was on Friday, Lenders do not simply reprice the full market improvement into the rate sheets.  Eventually, my "weightlifter" analogy won't require explanation, but here it is again: MBS are like an olympic weightlifter who must "hold the bar" for a certain period of time before the judges (lenders) give credit for the lift.  So since the MBS prices ended at their highest point of the day at closing on Friday, there was no evidence that the lift had been held.

But so far this morning, our buff little buddy's arms are locked and confident over his head.  The better than expected NAPM data didn't shake it and Paulson's oratory is not presently having a negative impact.  Who knows how long he will be speaking, but certainly some lenders have already or soon will be releasing rates.  Look for a sizable improvement over Friday's sheets.  If your lender repriced aggressively on Friday afternoon, expect another .25-.375 at least before accepting the improvements as "baked in."  If your lender didn't reprice aggressively on Friday, expect even better gains than that.

Some lenders may price conservatively until later in the morning, waiting to assess market sentiment after the Paulson speech and the general hesitance concomitant with the inception of a week. 

 Keep in mind that most lenders that did reprice aggressively on Friday, did so at one of two (or both) MBS levels.  The first was at around 10am when the 5.5% coupon was at 100-16, and the 2nd being at 1pm or later when the price was 100-25.  Using that as a case study, we should be able to fall almost a quarter of a point this morning before we'd see rates any worse than Friday afternoon, hence my recommendation to float into today, which you're no doubt glad you did (if you did). 

After typing this, the 5.5% coupon is holding steady at 101-01.  Hopefully our weightlifter will keep it up for a few more hours which will get us some even better pricing.  Depending on which lender you're looking at, some have room to move significantly more than .375 according to their historical rate sheet pricing when MBS have been around 101-00.

Paulson is talking about mortgage origination specifically right now, so we'll stay tuned and see if MBS traders feel this will harm the industry or if the tightened regulation will ease quality concerns and thus close the gap between 10 years.  The biggest news so far is the proposal of creating the Mortgage Origination Commission, a federal oversight body for origination.  Despite this, Paulson says he wants to preserve the individual state oversight.

The proposed new commission would work in conjunction with state regulation to keep the "crappiness" out of the mortgage market.