As we said, it would be a slow week for economic releases, and we are seeing evidence of that again this morning as MBS is "pretty much" unchanged day over day.  Currently, we are off between 0 and 3/32nds depending on which coupon you are looking at.  The 5.5% is currently at 100-09.

This is helping to bring the par rate on a 30 year fixed back down around 5.625 for wholesalers.

As far as scheduled economic releases, we have the ICSC Store Sales report in at minus 0.7% week over week change.  Chalk this up largely to high gas prices as consumers have fewer dollars to spend when all their money is gone just procuring transportation to the mall.  Year over year, we are still slightly positive, but factor in inflation and we're contracting.

Until Existing Home Sales figures are released in about an hour, that's all the relevant (not very) data we have on the docket.

Even headlines are scarce or uneventful.  Suntrust and Fifth Third posted worse than expected earnings.  Many other companies are contributing to this earnings season being "more down than up."  That hasn't happened in a while and is another feather in the cap of the recession monster. Even McDonald's posted its first loss in five years. 

By way of edifying the severity of the credit crunch, RBS announced it will sell 24 billion in shares to offset write-downs.  Across the pond, Credit Suisse announced a 500 employee cut.  The financial sector is obviously correcting and contracting. 

I wish there were more going on today, but that's about it.  The goings on that we do have are still not that impactful.

In addition, volume is light on the MBS market with few originators selling pools of loans as MBS.  Demand has been respectable (as you can see by our price improvements yesterday) owing in part to decent buying from overseas.  Risk appetite has been increasing for MBS as we can see by a continuing tightening of the spread versus US Treasuries.  This is also evident in the greater demand for Fannie and Freddie MBS as opposed to Ginnie Mae's (FHA, VA, etc...).

The only other real news of the day is the record high oil prices which may serve to restrain major buying of fixed income today on inflation concerns. 

So what we're saying is that we have a dearth of data?  Yes.

And that MBS have improved relative to the treasuries?  Yes.

And the absence of bad data is acting like good data with respect to demand?  Yes.

So what does that mean?

In a word: Caution!

As we regularly discuss, when data is light and volume is low, the impacts of one major headline, or one large purchase or sale of MBS can have disproportionately severe effects on pricing.  So we're quiet now, but if anything occurs to change that, the effects will be magnified. 

The Dow is just opening for the day, and traders will have to watch that and the other limited and relatively unimportant data to get buying signals for MBS.  Until then, it's "so far, so good."

If you see stocks spike and 10 year UST's climb in yield, it's a good signal to lock today.  I'll let you know if treasuries and MBS move in opposite directions.