Well, it was risky, but it paid off.  Here's how we left it last week:

 "For floaters, it's still worth it to wait for the end of next week.  One thing to remember on days like today where we have uncommonly low volume is that the trades that occur have a much bigger impact on the price action.  So the extent of losses is not necessarily a true reflection of where we are headed."

We made this call for several reasons, not the least of which is that our Elliot Wave analysis indicated that even if we were not at the bottoms of the year, we were at least at the bottoms of our current wave cycle.  Combine this with historically wide spreads, low volume, friday afternoon, and uncertainty about the housing bill and it appeared that the stage was set for a rally this week.

Even I didn't expect it to pick back up so much so quickly.  We were thinking that waiting at least a week would pay off, but you may very well have enough gains to get out today if the roller coaster of the past few days has been a little too much to stomach.

6.0's are up 21 ticks at 100-07

5.5's are up 24 ticks

6.5's are up 14 ticks (the fact that the lower coupon stack is doing better than the higher stack is  suggestive that the trading momentum is moving "down in coupon."  That's a good thing.

Stocks are down half to a 1.0 % all across the board.

Treasuries are singing a similar tune to MBS with the 5 year up  18 ticks and the 10 year up 28 ticks

The News

• Housing Bill
• passed the senate Saturday.  The fact that this bill makes GSE equity interests purchasable by the government can only help MBS.  The swiftness with which this has moved through congress is also an indication of the government's commitment (72 to 13 vote) to keeping things "warm and fuzzy" for Fannie and Freddie.
• No other relevant scheduled data for today
• Active for the rest of the week, with GDP on Thursday and NFP on Friday.

The Call

LOCK/FLOAT :  INTRADAY FLOAT

        If we can pick up enough gains today to satisfy you, locking this evening is not a bad idea as long as you reach Thursday afternoon's price levels.  Rates will PROBABLY improve more this week, but I can understand if some would like to take that risk and stress out of the market by locking.

DILIGENCE:      HIGH

        We'll need to pay careful attention today and tomorrow to see if the momentum that we were planning on continues to manifest itself in a predictable manner.  The technical charts look good for MBS.  Also, consider the following courtesy of Thomson-Reuters:

    "Mortgages are heading into their traditionally supportive time of the month: month end, non-farm payrolls,     reinvestment of paydowns, and Class A pool allocations over the next couple of weeks - on top of very         attractive valuations. While MBS may see some support, investors remain sensitive to data, headlines and     rumors and will react quickly to protect and gains and reduce their risks."

It can't be said any better.  In a nutshell, the fundamental and technical data point to strength for MBS this week, hence our risky decisions on floating last week.  But "headline risk" (the potential that an unexpected news item or wildly deviant scheduled release shocks the markets and causes greater than expected movement) is ALWAYS a consideration.  This is what we saw on Friday with the Durable Goods Orders report. 

So although, rates have more supportive evidence than negative, a stronger than expected GDP or Jobs report could throw a wrench in our works.  That risk is always present.  All we can do is take a look at the technical trends and consider the generally positive environment on a fundamental level, factor in our own preferences and execute.  If floating whilst watching the market shed the better part of a point "felt good," why not stay in the pool a bit longer?  If, on the other hand, your weekend and possible the very foundations of your sanity were destroyed by the ostensible loss, maybe you should get out while the gettin's good.

It looks like the gettin may be good as soon as this afternoon, which is a level of strength we did not expect to see quite so quickly after Friday.  If anything, it is more likely validation of last week's sentiments as opposed to a "false positive," or a "dead cat bounce."  Whatever the case, time frame is your friend.  If you have more than a week before you'd have to lock, it's much safer to float than if you only have a day or two.  Barring a continuing rise in inflation, it will be very difficult for MBS to NOT improve into the fall. 

Stay tuned for intraday updates today.  As always, reassess your available rates before your lock cutoff.  And for those of you that crashed at our place over the weekend, feel free to stay in the pool!