We'll lead off with the MBS Ninja tonight, and I'll translate afterward.

Secondary MBS, the market where rates are most influenced (great slogan huh?), played it almost according to recent form today as those who were left behind the prior day were less left behind today. Actually, in times of great moves the upper and lower wings (super-premium and lower coupons) were ignored in favor of the safety of the "belly" or middle area coupons along the 30yr universe (5%s and 5.5%s). This serves to lessen exposure (duration) and still adheres to some semblance of order as longer vehicles (lower coupons) are still needed to take advantage of a rampaging 10yr treasury note. Flows are again pathetic and confused as ramped up prepay reports are upon us next week, as is Non-Farm Payrolls-quite a high/low dilemma.

The market will still loosely follow the move along more fluidly flowing markets (i.e. treasuries) while not piercing thru the technical barrier (tights) of inside mid 50s over 10yr swaps. All this means is that during rallies the lower coupons (like rate influential 4.5%s) will back off on upside price actions (lower yields), while sell offs will not necessarily let everyone run to shorter and more market coupons (that's where FNMA and FHLMC are purging the securities of 120+ day delinquent loans-they've had enough).

Rates ahead will follow treasuries until next week, with perhaps more sluggishness seen at various times in various coupons until the "cold shower" effect takes place on Thursday, March 4th-Prepayment speeds come out two and maybe three times what they were-adios holders of 6.5%s and 7%s, hello lower coupons (with reservations noted above, of course)

  1.  "times of great moves...."  - Essentially, when MBS move either rapidly higher or lower, there's a perception of "less risk" in the central part of the coupon stack.  So if we're looking at 4.0's to 7.0's, The Belly will be, as Ninja points out, 5's and 5.5's.  This perception arises from uncertainty--uncertainty about rapid changes bringing about a SLOWER or FASTER than expected prepayment speed.  Remember, valuing MBS is all about the speed with which the mortgages that underlie an MBS pool are paid down/off.  If a discount coupon such as a 4.0 is at 97-28, investors are essentially paying 98 grand for every 100 grand in loans, and get that DISCOUNT (you'll often hear us refer to "discount" coupons) because the coupon in question is at a lower rate of return.  Conversely, with 6.0 coupons for instance at 106-12, investors are paying over 106,000 dollars for every 100,000 of face amount.  They pay this PREMIUM (there's the other side of the "discount" coin) because the MBS carries a higher coupon rate.  If markets are a-movin' and a-shakin', the assumptions about PREPAYMENT SPEEDS (how fast investors get their principle investment back) can exert more influence than normal on the relative values of MBS versus benchmarks and each other.  If there is uncertainty as to which end of the stack will do better or worse, the central part of the stack seems safer as it is not relying exclusively on a long shelf life (slow prepayment speeds) or a heavily exercised call option (fast speeds as borrowers refi or move up or pay down principle).  Final note, keep in mind that "COUPON RATE" IS NOT THE RATE OF RETURN FOR MBS.  Whereas you can take a known coupon rate, price, and duration of a treasury note to determine the yield, that's not possible with MBS due to the always variable nature in which borrowers retire their principal balance.  Based on what we've just discussed about pools of loans costing MORE or LESS than their principal amounts, it's these speeds that truly determine the YIELD of MBS.  Just be aware that any time you're dealing with MBS yield, you're relying on a MODEL based on assumptions and/or calculations--something with a bit of subjectivity.  As such, two reputable firms could have yields at two different places and the world will not come to an end.
  2. "piercing through technical barrier of tights...."  TIGHTS in this context refers to how wide or tight the spread is between MBS yields (which you now know more about calculating!) and treasury yields (which everyone with a computer or TV already knows).  In other words, if our model calculated a particular MBS at 5.0 yield and the 10yr note was at 4.0, the spread would be 1.0 or 100bps.  If MBS dropped to a 4.5 yield: 50 bps, and we might say "50 tighter" from where they were.  Usually this would be qualified by the METRIC against which MBS are being judged.  Sometimes you'll see plain old tsy notes.  Sometimes it will be a "blend" of 10yr and 5yr yields (for instance if the MBS coupon in question was showing a duration of about 7-8 years, a blended 5yr and 10yr tsy note SHOULD be a better value benchmark).  In the ninja's example, he also mentions 10yr swaps, which are 3m/10yr USD Libor Swaps - an exchange of variable rate bond investment indexed with the 3m libor for a fixed rate.  Several scholarly papers have been published within the MBS community over the years stating that swaps are a better MBS benchmark in terms of forecasting interest rate risk.  Indeed the technical barrier to which ninja refers is the point at which the MBS current coupon yield is 50bps higher than the 10yr swap.  If he says "technical barrier," we can reasonably assume that this is a level that MBS have come close, but not broken.
  3. "prepayment speeds come out" --  referring to the official monthly report on how fast MBS pools are actually paying off, thus better informing the guesswork, estimates, and calculations in order to potentially adjust models (models for calculating yield from prepayment behavior) going forward.  The "cold shower" ninja refers to would be the expectation that prepayment speeds will be picking up steeply in the higher coupons thanks to the Fannie Freddie buybacks, thus "robbing" those investors of all the interest they would have otherwise collected over time.  (remember, just because those loans might be in default, Fannie and Freddie are still paying the investors scheduled principal and interest, but in this case of the Frannie buyouts, the PREPAYMENT SPEEDS had an equally desultory effect). 

Wow... I bet you didn't know the ninja actually said so much.  But since brevity is the soul of wit, and I'm apparently at my wit's end, we'll pop the chart in below and leave it at that for today.  Don't forget yet another auction tomorrow, the Wednesday standard MBA purchase applications followed by FHFA HPI, as well as new home sales.  The headliners are Bernanke at 10am and the 5yr note auction at 1pm. 

Oh, and finally, as far as your "three rallies" from the title, note the improvement in tsy yields from the overnight session where with respect to a possible 10yr auction of their sovereign debt, Greece said "not touching with 10 foot pole."  Then consumer confidence was obviously the next biggie.  Third and final being the 2yr auction.  Nice orderly phases throughout the day.