Here was the 6.0 FNMA 30 YR MBS Price Curve on the day:



And here's the same, but over a 2 day period:




that's good stuff folks!

It's anyone's guess as to whether or not this sudden "awakening" to the relative value of spread product will continue.  But at the very least, both the technical and fundamental indicators are supporting the general sentiment we introduced 2 weeks ago which is that the July PROBABLY represents the bottom of MBS trading range for the year.  It's been quite the bumpy ride which is why we've advised floating for longer term decisions (to give the volatility time to play out), but the overall messages that the market is sending is that it's not comfortable with the 6.0 MBS going below 99-00.

 We may test those lows again in august, but you have to love days like today where stocks are able to rise 300 points, Fannie Mae is able to cut its dividend and post a 2.5 times worse loss than expected, and MBS is STILL able to have a really nice gain.  This tells us something!  Namely that the MBS market is heavily oversold, or at the very least it certainly was as of last night.  All of the potential buyers including money managers, asia, hedge funds (fast money), banks, and insurance funds, etc.. (real money) are in decent positions to slowly start reintroducing MBS demand.  As soon as we make a push back towards 5.5% being the current coupon, it's going to happen quickly, and likely on the heels of unexpected and reassuring headlines.  But now we are musing on events that are likely months away.  For this weekend, none of the indicators are providing much reason to fear floating over the weekend.

For those of you that got "in the boat" 2 weeks ago, we've already seen the same price levels twice since then, but if you stick it out for the duration of the original recommendation of 3 weeks, it's more likely than not that you will be rewarded.  As always "headline risk" (unexpected headlines aka "tape bombs") can ruin the party, and given the wide variations between consensus estimates and actual readings as of late, even "event risk" (scheduled reports) can ruin the day.  Inflation data this week was somewhat reassuring combined with only 1 dissenting Fed vote and a dovish ECB.  Whatever variables play out, the foundation of MBS buy-side interest seems to be in a solid position.  We'll have to watch that trend closely over the next week to see how the momentum goes.  But of course you'll be getting all that info as we get it.  Good Luck and enjoy your weekend.