So far MBS are up 4 ticks in 6.0's and 6 ticks in 5.5's at 100-02 and 97-29 respectively. We are still well above our retracement floor at 99-23 on the 6.0 coupon. Technical and Fundamental indicators leave "room for improvement," but you know what the likelihood of tape-bombs has been like recently, and their propensity to change the rules in the middle of the game. Best strategy is to stay closely tuned here and play it slightly defensive until the new year. However, in the next 2 months we will see plenty of choppiness, some of which will take rates back down. Because of the choppiness, "ride the rips, sell the dips, and know when to cash in your chips." In other words, if you see a "doggy in the window" that you like, by the time you've asked "how much?" the price will likely have changed already.
Last week started out choppy and faded into a snoozer. Items of note:
- The Fed Cut rates by 50bps to 1.0%. Of the $144 bln the fed allocated for CP (commercial paper), about 70% of that has been snatched up since monday. Also, Bernanke spoke later in the week and reiterated that a certain degree of government involvement in GSE's is crucial to investor confidence, even if the government moves to an "insurance" based model. Fed speakers this week include Fisher and Warsh (voters) and Lacker and Lockhart (non-voters).
- Consumer Confidence fell to record low of 38.0 as real GDP fell .3% (annual rate). This was smaller than the expected decline of .6%. Durables spending within the GDP report fell 14.1%, the worst in 24 years. Nondurables were down 6.4%, worst in 58 years. Services spending was the slowest in 17 years. The Chicago PMI fell sharply harkening similar results from ISM which arrives this week.
- Other than that, a "quiet" week ahead with the most important report of the month, NFP (non-farm payrolls) on Friday. Though not expected to impact rates, there's also the small matter of choosing our first new president in 8 years.
- There's a $54bln auction today for 3 and 6 month t-bills, quarterly refunding details on wednesday and the October STRIPS report on Thursday.
- Don't forget about the coupon roll beginning on Friday