The story of somewhat lessened demand from the fed this week versus healthy originator supply continues to play out today.  Word from the MBS Ninja is that servicers are finally getting in the game by selling their 5's and buying 4's.  We are significantly tighter today vs. treasuries as the 5 yr note is down 12 ticks, and the 10 yr down 17.  MBS by comparison are only down in a 1-5 tick range.  We haven't had much to drive trading today with only consumer sentiment out so far.  The 61.9 reading was the highest since September.  Perhaps the most notable deviation from expectations was the inflation expectation component which came in at 3.0% versus 2.0% in March's report.  There have only been 3 occassions in the last 25 years on which this 1 point gap has surfaced: after Kuwait invasion, after 9/11, and after Hurricane Katrina.  As opposed to 19% in April 2008, now 39% of Americans are expecting improvements in the economy, even though 9 out of 10 still agree the economy is in a recession.

The only other scheduled calendar item of note was KC Fed President Hoenig's "warm-up" speech before Bernanke at noon.  Hoenig is an alternate voter, and mainly spoke about the increasing shift in the Fed's role in communities, noting innovative programs that have now begun targeting specific communities as opposed to the "broad groups of constituencies."  Interesting choice of topic as the speech took place at the Community Affairs Research Conference.  Bernanke's up next and we'll let you know if anything from the pre-written speech has an effect on markets.  So far, neither the consumer sentiment reading or Hoenig's speech have moved MBS much, although there was a noticeable uptick in stocks after the consumer sentiment reading.

Despite the generally down day, and plenty of reasons from treasuries for MBS to move lower, we've had solid support underfoot at 99-25 on the 4.0 which has already formed a double bottom and is suggesting further support.  Wondering what that looks like graphically?  Wonder no more:

The imaginary Man in the chart poses a good question.  Sure, this line seems to be significant so far today, but let's zoom out and see what happens if we take a look at the whole week:

Cool dude is right.  You can see that this level coincides 100% perfectly with the lows of this week.  That's some fantastic technical significance.  If this line can hold, it could be a "higher low" in a slow and steady uptrend as we offer up sacrifices to the MBS Gods in the hopes we can move up from the longer term internal trendline just a few ticks below this "cool dude" line.  For reference, here's where this line falls against the 50,000 foot view:

So even if we fall through the good 'ol teal line today, we still would not have hit the amazingly important "red dotty" which would be akin to the groundhog not only not seeing his shadow, but instead a big plate of groundhog poison. 

That's about it as far as today goes.  Given historical Friday afternoons, don't be surprised to see continued weakeness, especially now that the early month supportive events are behind us.  In addition, next week is a barren wasteland for data.  Put that against fairly tight spreads vs. recent months and MBS are facing an uphill battle.  Interesting that this coincides exactly with the time frame that our red dotted line would suggest a few months below after a few months above.  All that remains to be seen however, and for today, if you didn't lock already yesterday, I'd be inclined to watch this "cool dude" line as a lock trigger.  If we break below it, you'll hear it here first, and may want to take a look at locking any short term sensitive deals.  Mid to long term, the trends suggest we could have some more happiness above the red line before getting pulled down.  Once we are heading towards that level though, mid to longer term deals are more likely to benefit from a lock bias at that time.  SO MUCH is understood merely on an hour to hour basis though that no certain bets should be made and GUT-FLOP is the universal guidance.  Back with more after Dr. Bernanke and continued low volume Friday trading. 

Here are current price levels:

FN30_______________________________

FN 4.0 -------->>>> -0-06  to 99-28  from 100-02

FN 4.5 -------->>>> -0-05  to 101-24  from 101-29

FN 5.0 -------->>>> -0-04  to 102-31 from 103-03

FN 5.5 -------->>>> -0-04  to 103-24 from 103-28

FN 6.0 -------->>>> -0-05  to 104-21  from 104-26

GN30________________________________        

GN 4.0 -------->>>> -0-07  to 100-04  from 100-11

GN 4.5 -------->>>> -0-06 to 102-02 from 102-08

GN 5.0 -------->>>> -0-06  to 103-15  from 103-21

GN 5.5 -------->>>> -0-04  to 104-02 from 104-06