The MBS stack remains at the mercy of headline news. At the open TSY yields were on the rise as equity market participants were feeling "warm and fuzzy" about details to come from the Obama Administration. This resulted in a slight unwinding of the "flight to quality" TSY trade and a sell bias in the MBS market. Since then stocks have sold off and TSY yields have fallen back a few bps...MBS followed suit...bids are marginally improved.
11am marks...
FN30__________________________________
FN 4.5 -------->>>> +0-03 to 100-30 from 100-27
FN 5.0 -------->>>> +0-02 to 102-00 from 101-30
FN 5.5 -------->>>> +0-00 to 102-16 from 102-16
FN 6.0 -------->>>> +0-00 to 103-02 from 103-02
A general lack of details surrounding the Obama Administration's plan to save the planet has left rates of all kinds at the mercy of the BACK and FORTH, UP and DOWN short term trading strategies of anxious equity investors. While the waiting game (for details) continues stock traders will nervously bounce back and forth between risky stock market positions and the safety and liquidity of US Treasury securities.
Mortgages have been and should continue to play the follow the leader. When equity investors discover new reasons for hope and optimism, working money will run FROM the Treasury market INTO stock markets and MBS will sell.... the Fed/Treasury/GSEs will however continue to provide rate sheet stabilizing support during these sell offs. The Fed is your friend.
When profit hungry stock traders find reason to recall and revel in the general economic/financial foulness (or just have temper tantrum)....money will flow FROM stocks back INTO bonds. During these pessimistic panic ridden trading sessions flight to safety will rally TSY prices. MBS money will pace TSY yields but any down in coupon MBS rally will unfortunately be slowed by already expensive MBS dollar prices.
MBS market participants patiently await direction from the Fed and lenders...in other words MBS traders have put "up in coupon" in pause mode..for now. The pace at which "down in coupon" rallies ensue will be dependant upon the perceived ability and willingness of borrowers to refinance their current mortgages. TSY sell offs may be exasperated by supply worries which will also slow any MBS rally....
Translation: Expect MBS bid behavior to follow the general direction of TSY yields, but not to the same extent. At this point in time, watching TSY yield behavior is acceptable...just remember that MBS optimism/pessimism will be tempered by government market participation. THE WAITING GAME CONTINUES...we need details!!! Until we get more specifications, speculation will run rampant and lender pricing strategies will remain erratic and unpredictable.
Rates are unchanged from Friday and the economic calendar is empty today. Remember to check out Around the Web to see what I am reading...