Fn 4.0-> +0-02 to 100-01
Fn 4.5-> +0-01 to 101-11 Gn 4.5-> +0-01 to 101-13
Fn 5.0-> +0-01 to 102-05 Gn 5.0-> +0-00 to 102-12
Fn 5.5-> +0-00 to 102-23 Gn 5.5-> -0-01 to 102-25
Fn 6.0-> +0-00 to 103-10 Gn 6.0-> -0-03 to 103-04
The MBS coupon stack remains in idle mode in preparation for the FOMC meeting. In light trading volume, the Federal Reserve has averaged over $4bn purchases per day which has provided the crutch necessary to keep MBS prices in a narrow/downward trending range. We aren't complaining about the lower MBS prices though, especially ahead of record TSY debt issuances. After auctioning $120,000,000,000 in new debt last week the UST is scheduled to offer up another $135,000,000,000 this week. Mortgage backed securities have slowly closed the gap vs. the yield curve with most of the tightening brought upon about by the increasing Treasury yields. If you are an intermittent reader Treasury yields have backed up while our financial leaders scramble to finance support spending. At 1pm the US Treasury will auction a record $40,000,000,000 2 year notes (PRESS RELEASE). fyi without Federal Reserve, Treasury, and GSE support...mortgage rates would be considerably higher...plus we are feeling more and more optimistic of the chances for continued post FOMC spread tightening, but we don't want to rule out the fact that market participants may wait for negative convexity to push thinner coupons deeper into the discount. (MAKE MBS CHEAPER!). Either way Fed support will slow the selling and "Fed bandwagon-ers" will look to ride out any down in coupon support.
So far today MBS price action remains muted. On the short end of the yield curve the 2yr note is 3 bps higher while the 10 yr note is 2.5 bps lower and the 30 yr bond is 5bps lower. Swap spreads are a few bps tighter on the short side of the curve and a few bps wider on the long end. 1m LIBOR increased from .40875 to .41125 and 3m LIBOR is slightly higher at 1.18438. The Effective Fed Funds rate remains at "take the free money" levels. Today' Effective Fed Funds....0.19. Here is a chart.
Source: NY Fed
In the world of economic data...
"The Conference Board Consumer Confidence IndexTM, which had decreased in December, inched lower in January and continues to be at a historic low. The Index now stands at 37.7 (1985=100), down from 38.6 in December. The Present Situation Index declined slightly to 29.9 from 30.2 last month. The Expectations Index decreased moderately to 43.0 from 44.2.". Here is the press release: CONSUMER CONFIDENCE
Uhm...so yeah the other data release was the Case Shiller Index. Look away if you do not like gore.
SWEET! NOOOOOOT (Borat)
"Data through November 2008, released today by Standard & Poor's for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 11 of the 20 metro areas showing record rates of annual decline, and 14 reporting declines in excess of 10% versus November 2007."
So home price devaluations are accelerating and no areas are good. All cities declining.
Source: S&P/Case Shiller
Today begins the 2-day FOMC meeting. All will be quiet ahead of tomorrow's policy announcement. We are expecting the Fed to cut rates another 50 bps...the target rate will be set at "please take our money we will pay you for it" levels. No seriously I am joking the Fed's primary weapon is out of ammo...no more rate cuts. I REALLY REALLY REALLY want to hear something about a Resolution Trust Corp. type institution that would buy up bad balance sheet assets...doubt anything of the sort is mentioned tomorrow but I am nonetheless going to voice my attitude that toxic assets are STILL the problem and that until a real solution (pun intended) is proposed this this issue will continue to push the US Economy further into a downward spiral of job losses and decreasing aggregate demand. Anyway more Fed commentary to follow...
MBS Market Alerts
