POST OBAMA PRESS CONFERENCE...4.0s 4.5s 5.0s and 5.5s have reacted favorably to the HEADLINE NEWS. Spreads in the short end of the stack are tightening....
FN30_________________________
FN 4.5 -------->>>> +0-00 to 101-04 from 101-04
FN 5.0 -------->>>> -0-01 to 102-05 from 102-06
FN 5.5 -------->>>> -0-03 to 102-20 from 102-23
FN 6.0 -------->>>> -0-06 to 103-06 from 103-12
President Obama just finished OUTLINING his Housing Plan...now that everyone is finished applauding here is a brief MBS synopsis...
The intense focus President Obama has placed on making mortgages more affordable will provide a major mental roadblock for "up in coupon" profit takers.
Remember a general "lack of concern" about prepayments has allowed MBS investors to take on added risk. Consequentially higher yielding (fuller) coupons became the preferred MBS investment of late, this trading bias added anxiety to already stressed lender pricing strategies. In effect President Obama has placed enough emphasis on more affordable mortgages to help expedite the end of the "up in coupon" trading bias.
Plain and Simple: Non-public money will HAVE TO move down in coupon because of new prepayment risks on fuller coupons. This will move interest rates lower and provide a stable non-Fed demand for lender production of lower interest rate mortgages. This adds stability to the MBS market and allows lenders to firm up pricing strategies.
Given the lack of details provided in the press releases there will continue to be a general feeling of uncertainty in all markets until we get more information on March 4, 2009. Stay at the ready and follow GUT-FLOP.
Bernanke is about to speak...Will the Fed buy the Long Bond????
Here's how Stocks and Bonds reacted...