MBS MORNING: UP IN COUPON CONCERNS

While the yield curve steadily steepened and equity indices engorged themselves in a short cover rally yesterday.... MBS quietly kept to itself in its own corner of the market. All in all, considering the run up in TSY rates and augmented supply of newly issued mortgages, market demand for MBS remains healthy.

There is however concern that market participants are once again testing the waters of "up in coupon" trading strategies with 5.5s and 6.0s being profit taker's coupons of choice. The main issue arises when YOU lock your loans and mortgage banks attempt to sell new MBS to the market. The Fed has been the only source of liquidity for originators of late because "up in coupon-ers" have moved their funds from the short side of the stack to the full/fat side of the stack. This is what created the volatile "reprice for the worse" environment. (When the Fed is left to fend for itself on days when originators sell we are usually subjected to reprices for the worse.)

The newly announced Fannie/Freddie refinance programs appear to be getting enough attention to prevent day traders from moving too far into the fat side of the stack....but, as has been proven twice this year already, that apprehension is easily erased if the market gets the sense that borrowers remain willing to stay patiently seated on the fence.

Plain and Simple: Beware of fast money MBS buyers moving their funds "up in coupon"...this does not mean rates go consistently higher...it does however imply that low mortgage rates will not be consistent.

So far today....

APRIL FN30_______________________________

FN 4.0 -------->>>> +0-01 to 98-20 from 98-19

FN 4.5 -------->>>> +0-01 to 100-22 from 100-21

FN 5.0 -------->>>> +0-03 to 102-01 from 101-30

FN 5.5 -------->>>> +0-05 to 102-25 from 102-20

FN 6.0 -------->>>> +0-03 to 103-12 from 103-09

(GN's behaving similiar to FNs this AM...generally flat)

Treasuries flat while stocks rallying...