Well, we surmised last week that the end of July/beginning of August would either mark the beginning of a slow rise for MBS or the precipitous falling to annual lows.  It wasn't really that sensational of an assumption as the markets have tended to do the same thing a majority of the time in the past. 

It looks like we have our answer as of last Friday and we are adding, albeit slightly, to the losses this morning. 

The Numbers

6.0's are down 4/32nds at 99-08.

6.5's are down 5/32nds at 101-20

5UST's are down a 32nd at 99-18 / 4.47% yield

10UST's are down 7/32nds at 98-03 at 4.11% yield

DJIA is even at 11,498

SandP is up 2.74 at 1263


The News

  • LEI (leading economic indicators)
    • this report came out dead on with expectations.  There has been little to no market reaction on this.  If anything, equities are showing signs of being "not impressed."  Surely, they were looking for some fiel to add to the rally fire, but this is not it.  
  • BofA Earnings,
    • This came out better than expected which is helping equities keep from reversing into negative territory this morning.  Many financial stocks are rallying.  Any other sector equities rally would have more of a negative impact on MBS, but any positivity in financial stocks adds a modicum of reassurance about the overall MBS picture and decreases some of the more intense urges to buy treasuries over MBS.  but uncertainty remains until the Fannie and Freddie news have more time to play out.
  • The rest of the week is light in terms of data.

The Call

    Ok, we may finally be nearing the bottom, but there is no way to know for sure.  It's a good sign, at least, to not the the same downward momentum we've seen in the past 3 sessions.  Take a look at the graph below to see how, after this morning's session started, we've simply been going sideways


Again, this is a good sign, not necessarily in that it means that we will make gains on the day, but at least that we COULD avoid the same level of carnage from the previous 3 sessions.

Also, we should consider that with as much downward momentum as we've seen, that lender's are hedged on the safe side of generous (aka, not generous).  

It seems a bit odd to say it, but the indicators are, at least in the ways mentioned above, pointing nowhere but up.  We MUST avoid the same sorts of "tape-bombs" we saw last week.  MBS buying will remain cautious until the GSE situation becomes finalized.  If an innocuous government intervention plan of the GSE's can be finalized sooner than later, this will be good for stability.  If the economy can continue to generate weak numbers but not catastrophically so, this will be good as well.  We desperately need more inflation data to be tame.  After the higher than expected CPI, the next key inflation readings will be EXTREMELY important as they will either confirm an upward trend in inflation, or allay fears that it will spiral wildly out of control.  This, in and of itself, would probably be good for a full point gain in MBS.

Whatever the case, we either have a bit farther to fall before feeling the sand on the bottom of the MBS ocean, or we can slowly but surely climb out of this mess.

LOCK / FLOAT: Ha!  What does it matter!?  Today's rates are the worst of the year.  Nowhere to go but up right?  Well, that's a dangerous assumption.  Some of you will be better served by taking the risk out of the market as you will always regret "floating when you should have locked" more than you'll regret "locking when you should have floated."  

Still, today looks like a floater and if we can even just hold onto this sideways momentum, we should see reprices for the better from some lenders.

VIGILANCE: medium (because there's no such thing as "low" in our world).  But today would be your safest day out of the last few to "tune out" and trust that when you got back from the golf course at 3pm that rates would be the same or better.  However, we have to maintain at least a medium level of vigilance as you never can tell when a headline will lob a "tape-bomb" in our direction.