MBS money is moving down in coupon this morning. Mortgage rates are slightly better...

1030am marks...

FN30__________________________________

FN 4.5 -------->>>> +0-09 to 101-00 from 100-23

FN 5.0 -------->>>> +0-07 to 102-02 from 101-27

FN 5.5 -------->>>> +0-05 to 102-18 from 102-13

FN 6.0 -------->>>> +0-03 to 103-04 from 103-01

Good Morning. Its Friday. And Markets are once again in PANIC MODE

Speculation that the US Government may be forced to bail out the "once largest" banks in the World has forced global equity investors to reconsider their exploratory bottom buying strategies. After the Dow closed at its lowest level in 6 years yesterday, global investors responded overnight by vacating risky positions in equity markets in favor of the safety and liquidity of the US Treasury market.

DOW October 2002 Low....Breaking this technical support signals a whole new wave of pessimism in financial markets

Global Stock Market Panic. Red = BAD

Here are the FLIGHT TO SAFETY trades....Gold is near nominal all time high (inflation adjusted is closer to $2200s)

Treasury Yields (US Government borrowing costs) still near all time lows...

In regards to Bank Nationalization....if you didnt watch Ben Bernanke's speech at the National Press Club this week you may not be up to date on the sources of rumor mill speculative biases.

After Bernanke read his prepared statement he answered a few questions for the audience. When discussing the banking sector Bernanke used the verbiage "return banks to private hands" which implied that the US Government was planning on...or in effect through balance sheet expansion had already nationalized some US banks.Not true. This goes to show you how sensitive markets can be to Fed Speak. Just know this is RUMOR and SPECULATION...Bernanke and Geithner have given us no REAL reason to believe bank nationalization is near. One could speculate  many reasons why it COULD HAPPEN though. You can watch  Bernanke at www.press.org

Note: I do read Roubini and many other doomsdayers...they make good points. These writers are hard to tune out at times but dont let yourself get sucked into one perspective. Something clearly needs to be done to remove "toxic assets" from bank balance sheets. Bank Nationalization may be an option but there are a few others too. When formulating your OWN OPINION consider all the possible paths our economy may take ....and dont fight the Federal Reserve...they are steering the ship...dont fight their initiatives because they will win IN THE LONG RUN

Now you Know the Rest of the Story....(yes I just quoted Paul Harvey)

Although rate sheets were subjected to some foul feelings in the MBS market yesterday one should take some solace in the fact that the market bias clearly favors down in coupon. This is step one on our journey towards "it that shall not be named". However until we get more details regarding government plans the MBS stack will most likely follow the general direction of US Treasuries. This doesnt give you free run to follow the UST10YR...that is not advisable considering expected supply and government intervention in MBS markets. One can however assume that MBS will GENERALLY follow the price behavior of US Treasuries. This implies that MBS will subjected to a tightly wound stock lever. Headline news has the power to allow for the liquidation of "flight to safety" trades which could drastically steepen the yield curve and slow the pace of any down in coupon MBS rallies.

This morning MBS are indeed following the general direction of TSYs. MBS is however getting outperformed by the flattening US Treasury Curve. At 1030am the MBS stack is 4-8 ticks wider to Treasuries and 4-6 ticks wider to swaps. For you spatial learners here is what I mean by flattening yield curve.

I have been reading all the reader comments re: the Housing Plan and Stimulus Package...bear with us...analysis is coming