Yesterday saw an unprecedented move by the Fed, cutting the target rate not only by the more aggressive of the futures values, but adding a RANGE allowing an additional .25% easing.  Some would argue "they're out of bullets," but when they can announce a $500 bln MBS purchasing initiative and it moves the markets as much as it did, there are plenty of other bullets besides monetary policy in this new era of quantitative easing.  After the announcement, which specifically mentioned continued purchasing of MBS as needed, MBS prices skyrocketed to nearly their best levels, well, ever. 

During the nocturnal session, MBS improved a few more ticks and treasuries keep on pushing into unprecedented territory.  Stock futures are down a bit and oil is rapidly approaching a 39 dollar handle. Perhaps the most significant product of the O/N session would be Swap Spreads continuing to drop.  The shift has been catastrophically positive.  Recall (if you forgot or didn't know), that swap spreads are sometimes significant to MBS as they are an indicator of credit availibility on the secondary market.  Lower swap spreads mean that short term funding is cheaper and thus the "cost of carry" (net yield on MBS purchased with financing) can be lower.  Lower cost of carry = lower MBS rates.

All the preceding has added up to a monumental occurence.  5.0 MBS just credted 103-00!!  This is a remarkable 25 ticks up from an already impressive rally yesterday.

4.5's are at 102-26 and are now overtaking the 5.0 in terms of volume.

4.0's, which saw almost 100 million of originator supply yesterday (not even 5% of the market) are up a point at 101-28. 

REMEMBER!  The normal rules of "how far from MBS prices will lenders price their rate sheets?" are not applying currently for the same reasons our good Mr. Quinones pointed out.  It will take WEEKS not days before we start to feel like things are moving in the right direction in terms of the spread between MBS price and YSP.  January Settlement should help a lot.  It will take MONTHS however before we are likely to see the scant 15 tick margin between MBS par and lender par.

The economic calendar falls asleep again today, and even if there was data, would anyone care?

- The Commerce Department reported a $174.1 bln current account deficit for the third quarter of 2008, less than the $178.8 bln deficit expected by economists.  As a percentage of US GDP, the Q3 deficit was 4.8%, down from 5.1% in Q2.

As far as the day ahead, the float club is in session as never before.  MBS have walked a long and lonesome road, but it may be time to call a bottom to that trend.  We've had this amount of positivity and STILL have not seen a dollar of the $500 bln Fed injection.  With actual FOMC policy statements specifically mentioning MBS, and with all the risk that has been priced into the market this year, and with treasuries looking to continue to set a low basis, and with lenders' spreads between MBS and rate sheets wider than ever, there is nowhere to go but up in the short and even medium term.  Bumps in the road?  sure...  But the general trend remains "down in coupon."  Don't be surprised to see a 3.99% PAR rate some time soon.

Here's a nice chart with which to start your day.  It's the 2 day 5.0.  Though yesterday was good?  Look at this AM!