I'm from Oregon, so those of you from warmer climates may not catch the analogy. When we were younger, no one would just walk out into the ocean. There would be a series of runs in followed by frantic dashes back out as our legs began to freeze. It was kind of a test to see "how far can you go in without incurring an inordinate amount of pain trying to get back out."
Now that stage is set, I can finally get to my analogy.
MBS might just as well be another kid at the oregon coast today. They know that it would be fun to play in those waves, and they know they can't just walk right out to them. So they have toed the water, retreated, toed again, this time deeper, jumped back out again and reevaluated. Then at 10AM eastern, they decided to go deeper than the rest of their friends. Whether they intended to stay out there hoping for the perfect wave (aka good news from Uncle Ben tomorrow), or to simply just show off a bit and dash madly back toward the shore, we know not. All we know is they have dashed madly back towards the shore as prices are now near unchanged day over day, off about 8/32nds from the highs of the day.
So it appears the extroverted MBS market, either trying to be the first one to the wave, or just taking an overly exuberant run into the water, has decided to join the rest of us on the shore and wait to see what kind of wave the mighty see god Bernanke conjurs up tomorrow. If it's a good looking wave, expect MBS and his other fixed income friends to jump right back out there, and probably a lot deeper. If it's not the wave they are looking for, expect them to run like scared children to "higher ground" (pun intended).
As of now, you have probably already seen the first price worsenings I warned about earlier, and you may see a few more. But fortunately lenders priced fairly conservatively today, despite raw MBS pricing allowing them to go a bit further. So the full effects of an 8/32nds worsening may not be felt all the way on the rate sheets.
So as the clouds roll in yet again, we await what we know will be, at the very least, an interesting storm to watch. Those who rode with me out in those stormy waters last time were ultimately rewarded on Friday, despite the boat appearing to be sunk on Wednesday afternoon. I'm not feeling quite that clairvoyant (or lucky) this time around as I think analysts are doing a much better job of agreeing on very poor consensuses for the economic reports. So I'm not as confident to say, float through Friday this time around. What I can promise is that you will be more up to date than anyone else on the web on the changes in the MBS market following the announcement tomorrow. I'll keep the opinion at a minimum. It's too volatile a situation for anyone's opinion to count much anyway. Just look to me for the facts and draw your own conclusions about what's happening.
As we gear up for another fantastic voyage tomorrow, please contact me if you have any special requests this time around. We want this blog to be the only resource you need for MBS analysis, so your feedback is important. If your comment relates to live alerts via text message or email, we are already planning that so additional suggestions for that are not necessary. The same goes for live access to a price grid or graph, as well as daily or weekly graphs with analysis. Particularly, if there is something we can facilitate for you during the rest of this volatile week, please let us know at firstname.lastname@example.org and put "BLOG REQUEST" in the subject line.
I'll see you out at the docks bright and early tomorrow. Please bring your life-jacket (in other words, if you are going to join me, be ready to lock immediately).