From the FOMC Press Release:

"Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time."

Following the release of the FOMC STATEMENT treasuries  promptly sold off and the yield curve moved steeper. The TSY sell off was caused by two things. The FOMC's "economic bottoming friendly" comment, "the pace of contraction appears to be somewhat slower" AND second, the lack of any verbiage that would suggest/hint/announce plans for further government funding support for the US Treasury market.

At 2:15, 2s vs. 10s, or the spread (difference) between the yield of the 2 yr TSY note and the yield of the 10 yr TSY note, increased into the mid-215s (215 bps), a spread not seen since November 2008, and the yield on the long bond (UST30Y) went over 4.00% for the first time since November 2008. 

MBS reacted relatively favorably nonetheless...

Does that conflict with your perception of the events that unfolded following the release of the FOMC statement?

That is understandable when one considers that your opinions regarding the "THE DIP" are mostly based upon the considerably worse rate sheets that were republished by lenders.

We are aware that your rate sheets lost considerable ground today, but we nonetheless found a few reasons that helped us look past the intraday reactions. The reasoning behind that apathetic anxiety relates to our biases and familiarities with the behavioral pricing patterns of lenders and the Federal Reserve's unending support of "rate sheet influential" MBS coupons.

In regards to the behavioral patterns of Lenders...mortgage bankers have been selling their loans when YSP is at its richest levels. Over the past week we have witnessed several swiftly executed periods of "originator selling". The timing of such "originator selling" has taken place at points when the prices of "rate sheet influential" MBS coupons were trading near the top of their month over month trend channels (rich levels).

So on the bright side...lenders have room to offer competitive mortgage pricing to consumers, regardless of the repricing for the worse that took place today.(This of course overlooks the fact that Citi and Bank of America (aka Countrywide) have been spotlighted a potential highly stressed banks and may need to repair their balance sheet with some fatter rate sheet margins).

In regards to the "Federal Reserve's unending support of "rate sheet influential" MBS coupons"....one need not look further then the tightening yield spreads between production MBS coupons and their benchmark big brother TSYs. Even as TSY prices and TSY yields got massacred today (SEE MORE),...MBS held stable (stable relative to the "evacuation-esque" selling that took place as positions extended on the yield curve.)

Translation:  MBS/TSY yield spreads moved tighter throughout the day. MBS outperformed TSYs!!!

This implies demand for MBS remains HEALTHY. Two buyers for every seller!!!

This overwhelming demand for MBS has indeed been made possible by the check book of the Federal Reserve/US Taxpayer...and is not something new to us. The over $1,000,000,000,000 that has been allocated towards agency MBS purchases has sufficiently served to stabilize mortgage rates and allow the MBS current coupon to hover near 4.00%....even while TSY yields have vacillated in a wide range over the last few months (supply concerns, FTQ, etc, etc). This "outperformance" can be illustrated by the fact that the spread between the Fannie Mae Current Coupon and the 5/10 Treasury blend has tightened up from about 200 bps at the end of December to around 145 bps today. 

This dramatic spread tightening illustrates a bias towards MBS vs. Treasuries. Well, actually this is not the the "real market's" bias..it is only the bias of the Federal Reserve. It is purely a function of the artificial demand created by Fed block buying in the MBS marketplace.

A bias that still has $869,000,000,000 for us to rely upon....this is why we feel like lenders will continue to have the opportunity to offer par 30 year mortgage rates near 4.50 to 4.75%....even if the 10 yr note is trading near 3.10 (which the Fed will most likely push down in the future...with either their bully pulpit or an unexpected press release or just straight up open market purchases (talking with their wallet).

Since 5pm "Going Out" Marks...

FN30________________________________

FN 4.0 -------->>>> -0-07  to  100-03  from 100-10

FN 4.5 -------->>>> -0-05  to 101-28  from 102-01

FN 5.0 -------->>>> -0-01  to 102-30  from 103-01

FN 5.5 -------->>>> -0-02  to 103-20  from 103-22

FN 6.0 -------->>>> -0-01  to 104-19  from 104-20

GN30________________________________ 

GN 4.0 -------->>>> -0-07  to 100-07  from 100-14

GN 4.5 -------->>>> -0-05  to 102-04  from 102-09

GN 5.0 -------->>>> -0-04  to 103-17 from 103-21

GN 5.5 -------->>>> -0-01  to 103-29 from 103-30

GN 6.0 -------->>>> -0-01  to 104-13  from 104-14

Tomorrow we get personal income, PCE, and Jobless Claims at 830am followed by Chicago PMI at 945am. Fed Agency MBS purchases later in the afternoon....