The big news we've all been waiting for, The Employment Situation report, was released this morning.  Non-Farm payrolls dropped by 80,000 compared to analyst's consensus of a 50,000 drop. 

In addition, the unemployment rate read 0.1% higher than expected.  

Historically, decreases in payrolls an increases in unemployment coincide with recession.  Perhaps the debate will soon be coming to an end.  Whatever the case, in times of economic woe, investors seek the safety of fixed income investments such as treasuries and Mortgage-Backed-Securities.  So as you might guess, it's a good morning for MBS so far.

FNMA 30 Year Fixed MBS:

You may have noticed that the coupon range includes 4.5% today and gets rid of the 6.5%.  That's because at 96-18, the 4.5% coupon is closer to PAR than the 6.5% coupon is at 103-23.  Remember that the numbers in the price column are the prices that investors are paying for a particular interest rate pool of loans.  So if a lender closed 100 million in March, and the the average interest rate of those loans was 6.0%, they could sell that pool of loans today and get paid $102 and 19/32nds per share, or 102 and 19/32nds percent of the total loan amounts.

You guessed it, this is where YSP comes from.  Remember that lenders aren't going to give you almost 3 points YSP at 6.0% because they have to make their profit, but, depending on how the market is moving, there is a pretty standard amount of that "spread" that makes it back through to lenders rate sheets.  If you want to know what it is for your lender, just look at their price on a 5.5% today and compare it to the MBS price at 5.5% of 101-05.  So if they are priced at PAR, then there is a little over 1% of profit on that loan.  Depending on the lender, this profit may be getting split up several ways on the "back end." 

At any rate (pun intended), that's why 4.5% made it onto the grid today because it is not only closer to PAR ( a price of 100-00), but we're also in a declining market, so more transactions are likely to take place at 4.5% versus 6.5% in the coming months.

In the time this has been typed, we've improved another 1-2 ticks all across the board, so certainly float until you have rate sheets.  Here's the tricky part for today.  This morning's ramp up has been dramatic.  In those cases, lenders do not always pass on the full benefit of the MBS pricing until it has stabilized somewhat.  So analyze your rates today compared to rates yesterday.  In the 5.5% range, they "should" be somewhere around .625 better in YSP.  Or at least, lenders have room to improve by this much, although they may wait for that stabilization.  If you do have the .625 (or better as some lenders price ahead of the anticipated curve), it's not a foolish idea to lock simply due to the fact that we've been hitting ceilings of resistance recently near these price levels.

But still, if you stay tuned here and watch Stocks and Treasuries, you should be able to safely float today and come out smelling like roses.