Are you getting tired of this yet?  Volatility much?

Let's preface the statement "good Wednesday" by saying that the "good" part comes from the fact that mortgages started out in negative territory today and fought back so slightly better levels than yesterday.

At most it's probably enough to get an eighth better in terms of interest rate.

What's driving this volatility and the "can't knock me down" strength of MBS?

The News

• Bill and George
• The housing bailout bill burned though the senate and was signed into law today by curious George.
• The Speed with which this bill was executed is undoubtedly at least a small reassurance to investors in mortgages. 
  
• The housing and mortgage related parts of the bill (which has many diverse parts) are of little consolation.
• Of significantly higher importance are the parts of the bill that provide for the government to serve as a backstop for Fannie Mae and Freddie Mac
• Fannie and Freddie are government "sponsored" enterprises, but unlike Ginnie Mae (GNMA), the agency that is responsible for FHA and VA loans (among others), Fannie and Freddie loans HAVE NOT been operating with the financial backing of the "full faith" of the united states government.  This fact has perennially led to GNMA mortgage backed securities being "worth more" than GSE MBS (fannie and freddie are GSE's).
• This new bill, although not explicitly stating that Uncle Sam has your back if you invest in GSE MBS, basically still gives an IMPLICIT guarantee that even if the government won't come right out and guarantee that investors will get their money back, they will at least provide liquidity (borrowing ability) to the GSE's in order to allow the GSE's themselves to better honor their commitments to insure investors' returns.
• In a roundabout way, this makes these GSE MBS worth slightly more than they were worth yesterday because the bill, in a roundabout way, makes it more likely that investors will receive return on their investment. 
  
• It was because of this phenomenon that MBS performed much better than US treasuries today on a day over day basis.
• In Other (less important) News
• The payroll company ADP released their findings on how many private payrolls were added or subtracted to the economy.  Recently, "subtracted" has been the norm, but today, they "added" 9000 payrolls
• Normally economists don't much care about this report as it varies so widely from the official payrolls figure that the government releases on Friday, but since it was much more positive than expected, it has given market participants pause in considering that the estimate for 72,000 lost jobs last month might be a bit aggressive.
• Since the estimates of 72k loss are already "baked in" to the trade flow of the capital markets, any potential "beat" is taken as positive news for the economy.  This helped stocks to perform well today.
• Oil, however, rose almost 5 bucks a barrel which is normally a "bad day" for stocks.  it was not today which is further evidence of stock strength which is generally bad for bonds.
• All in all, stocks ended the day in positive territory, treasuries made it back to even, and MBS gained a bit

Conclusion

What we're seeing today is traders taking up positions for the next two days which pack an uncanny wallop of scheduled data.  Since it also occurs during earnings season, it makes for an especially volatile two days.  As always, if the economic data is weaker than expected, it will generally be good for fixed income investments such as mortgages.  If, on the other hand, the GDP, job loss, manufacturing, consumer confidence, etc... is BETTER than expectations, rates could suffer.  The best case scenario would be for some "false hope" of economic strength combined with aggressive analyst estimates.  This would set the stage for the "par for the course" lackluster data to deliver benefit to mortgages.

This is not the case tonight.  The estimates (with the exception of GDP) are all fairly conservative.  GDP is aggressive calling for 2.4% growth.  The weight of the economic stimulus package is being considered heavily since it has helped some other reports to come in better than expected earlier this month.  In a vacuum, this would be bad news for mortgages, but considering several other factors that we don't have the space to discuss here, mortgages will tend to be strong right now for other reasons.  All in all we are left with the "big picture" showing that MBS have a decent amount of support on the horizon, combined with a decent amount of antagonists.  it's an evenly matched battle and the outcome is anyone's guess.

In times of 50/50 uncertainty such as this, locking is usually wise, especially if your time frame is short.  It is nearly certain that if tomorrow's inflation data is tame that MBS will continue to improve into the fall, but the shorter your time frame the lower and lower that certainty is when it comes to having better rates on Friday than we have today.  So let your risk tolerance and your time frame be your guide.  Use websites like bloomberg (especially the economic calendar) to research the historical performance of thursday and Friday's scheduled reports.  if your "gut" tells you that things are going to turn out better than those estimates state, locking becomes even wiser, but if you think that the stock rally of the last two days is a false hope of a dying cat (traders often refer to strength after a market bottom as a "dead cat bounce"), then you would probably be better served by floating.

Whatever the case, if you have time to wait, it's more likely than not that rates will be better within your time frame.  There's even a reasonable chance they will be better on Friday.  But that chance is only half your concern.  The other half is that they could be worse than expected.  If you can't afford to take the risk, locking now is the ticket.  If you CAN take the risk, it should be a fun roll of the dice.  The recent trends probably point to a very slight advantage for floating.  But the perennial wisdom is that the pain of floating when you should have locked is always greater than the pain of locking when you should have floated.  In other words, the contestants on "Deal or No Deal" that take the 300,000 deal even though they had the million dollar case usually sleep better at night than the contestants that had the 300,000 offer on the table, went for the million, and lost it all.  So you'll PROBABLY have access to better rates between now and the time you need to close, but just ask yourself if it's worth the risk before you push the "no deal" button.