In A Word:

The mortgage industry is a spook place indeed.  Quadruple Witching today, which invites the markets to do a free-form interpretive dance, devoid of scheduled data, but with significant motivations for movement.  This makes predictions more difficult, but the action more intense.  Right now traders like treasuries WAY more than MBS with the 5 year note up 16/32nds, but the comparable MBS coupon a mere 6/32nds.  Hey!  Improvement is improvement though right?

The Why:

As mentioned above, we don't get any hard data in terms of reality versus expectations today, so we'll have to rely on a logical interpretation of the numbers in order to divine their motivations.  This one is fairly easy today.  With the DJIA down a hefty 171.06, I'd be buying fixed income too!  The treasury bias likely due to the negative news headlines being weighted towards financials with significant mortgage interests.

To Lock or Float?

Another easy call...  Float...  Perhaps not through the weekend, but certainly until further notice.  We've been improving all morning and have re-landed on the perch of yesterday's high as evidenced by the graph below.  If we drop enough to cause reprice concern, I'll update you.


The Numbers:

6.0% coupon is up 5/32nds (changed 1 tick since typing in the first paragraph) at 100-15.


Pull up a lawn chair, grab a mai-tai, sit back, and enjoy the action today.  Of course you'll need your laptop, or an extension cord for your fax machine at this beach as you'll want to be ready to lock.  I hold the secret belief (not a secret anymore I suppose) that lower rates are in our future, but the data didn't seem to support this enough to say so, and it still might not.  Eventually, the decreased portfolio "crapiness" (you've all seen underwriting guidelines tighten, so you know the loans are higher quality), will trickle its way down to the street.  The rising quality of MBS paper will be proving itself out this year.  This leaves room to tighten the curve against treasuries.  We're still wide enough that when that "quality perception" returns, and assuming the economy is as weak as it should be, rates should be significantly better than they are now.  As far as I'm concerned, this isn't as much of an "if" as a "when."  Inflation has been the dark horse though.  So in the presence of that naughty horsey, it may be too early to hope that our improvements will continue as soon as next week, but it's possible. 

Still, as is the default advice, if the deal is going to die if rates worsen, lock early and lock often.  It's not worth the risk.  But if you put much stock in Technical analysis, both Fibonacci Retracements and Floors/Ceilings indicate we are at another floor/ceiling/retracement line level.  So if we go up today--100-16 is the mark for Fibonacci, and it was 100-14 for the support floor--technical analysis suggests we'll go up yet again, albeit potentially erratically, at least to the 100-28 mark or close to it.  I don't have an immense amount of faith in technicals alone, but they when they coincide with suggestive data, it can be a better than 50/50 proposition.  So if we rise today, positivity may ensue next week.  As always, we'll have a better sense at the end of the day.