The normally utilitarian and uninspiring images on my trade screen today are now one of the most beautiful things I can remember seeing in quite some time.  After spreads vs. treasuries drew nearer and nearer to all time high territory, one couldn't help but wonder, "when will investors wake up and see the relative value?!"  Well, they were probably waiting for the spreads to get high enough or for Fannie/Freddie news to add reassurance or for a slight financial sector rally.  Other factors such as lower volatility and tremendous liquidity in the 5.5% coupon have combined with the aforementioned to create an environment very conducive to MBS gains.  Spreads vs. treasuries are over half a point still.

The Numbers

6.0's are up 7 ticks at 99-17

6.5's are up 6 ticks at 101-26

5UST's are down 10/32nds at 99-102 / 3.53%

10UST's are down 10/32nds at 97-28 at 4.14% yield

DJIA is roughly unchanged after giving back morning gains

SandP has managed to hold onto about a third of a percent increase on the day.


The News

  • Fannie/Freddie "bailout"
    • reports are out identifying timelines for the bill to be passed.  Looks like its only a matter of time.  Fears are being allayed on all fronts and (big surprise) everyone is beginning to see it wasn't quite as bad as the panic made it out to be.
  • MBA Purchase Applications declined 6.2% largely attributed to our rise in rates.
  • Crude Oil continues to move lower.

The Call

LOCK/FLOAT :  FLOAT, (possible mid day lock if profit taking breaks our uptrend)


"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. 

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."

That's what we said yesterday, and although it still is too early to call 99-01 "the bottom," it is more likely than not. 

Please be aware that many times when we have this sharp of a rise in MBS on the day that "profit-takers" may jump in the second half of the day and bump our curve out of the nice trend channel it is currently in.  Would you like to see it?  I thought so...  (this is actually a 2 day graph so you can see the trouncing from yesterday and what is possibly the lowest point we'll see in a while.  The green line in the middle begins today and you can see us just take off.  All the while, treasuries not doing so hot...


I've not often seen trend channels that start out this aggressively hold inside the channel through the close when it comes to MBS prices.  Normally that is much more of a risk when prices are near their historical highs as opposed to their historical lows.  So we will have to wait and see how quick lenders are to price in the gains and when, if at all, we start to either move sideways or retrace some gains.  Whatever the case, we're at least floating today for now.  As for the broader implications of this potentially being a turning point, just keep doing your rain dances...