It was a rough afternoon for MBS to a certain extent yesterday.  Compared to their cousin, the 10 Year Note, they fought off the onslaught of the stock rally very well, but ended up losing quite a bit of ground nonetheless. 

We've recouped about half of those losses already this morning.  Take a look:

 We've had mostly an upward trend in MBS prices in the last hour, so hopefully it will hold.  It is an extremely light news day today in terms of scheduled economic reports with only the MBA mortgage application report showing a 2.9% decline.

But the unscheduled headlines, one in particular will be well-received today: Fannie and Freddie's capital requirements have just been lowered from 30 percent to 20 percent.  The Office of Federal Housing Enterprise Oversight put it best: ``The initiative is expected to provide $200 billion of immediate liquidity to the mortgage-backed securities market.''  We have to love that!

In other, less important news, Morgan Stanley announced earnings better than expectations, but the writedowns remain.  The MBS market is reacting much more to the Fannie/Freddie news combined with the Dow's inability to extend yesterday's rally.  

So all in all, expect a good day for rates, perhaps not quite as good as Monday afternoon, but we'll see as the day progresses.  The Dow is currently up only about 10 points on the day.  If it turns negative and in the absence of any negative mortgage headlines, the door will be opened for further improvements today.

Check back for an update in about an hour so we can take a look at where lenders are pricing with respect to our rally and make our lock/float plans from there.