MBS OPEN: Rates Mid-Range. Snow Slows Marketplace

Good Morning.

Snow,  "Firewalls", Bernanke's QE Exit Plan, and $25 billion 10s are the talk of the town today.

DC is closed, out for the day on snow emergency. From the WSJ:  "I can tell you right now that if 20 inches happens, we'll lose the week," said John Berry, the director of the federal Office of Personnel Management, who makes the final decision about work plans for 270,000 government employees in the region.

New York and Connecticut are seeing blizzard like conditions as well. This  means some trading floors are closed while others are thinly staffed. While electronic markets are now more heavily relied upon for trade execution, rather than open outcry, this will still negatively affect participation today as those markets must be manned to exist.

In Europe, talk of German "FIREWALLS"  is helping calm panicky concerns over the fate of the PIIGS. Portugal, Italy, Ireland, Greece, Spain. Don't say that at Barclays. THEY DO NOT LIKE IT

This whole sovereign debt headline provides an example of how fear can spread and rumor can affect the marketplace. There is much speculation as to how this will be dealt with...I expect political strategies and jawboning would be employed for the time being...until the story is pushed off the front page at least. Then after that, once the panic premium is priced out of the market, the situation will be dealt with a manner that builds a solid foundation of investor confidence. This will help avoid contagion in the marketplace down the road. Letting fear spread is not something any government wants to have to deal with in this nervous economic environment.

Anyway, instead of showing you a Greek CDS chart..I will demonstrate panic driven volatility with a 2 yr Greek TSY note. That is a wide trading range. That is chopatility.

At 10AM the Federal Reserve will release the written testimony of Chairman Ben Bernanke, who was scheduled to appear before the House Financial Services Committee to discuss the Fed's Exit Strategy, but will not because Congress will not be in session thanks to the snow. Expect to hear more about the need for stable job creation and balanced inflation outlooks. There should be talk of the gradual unwinding of liquidity programs...perhaps new verbiage on the Agency MBS Purchase Program????

We'll see...in regards to rates, if the overcrowded short end of the yield curve gets spooked by rate hike rhetoric, it could spell trouble for "rate sheet influential" benchmarks. We are paying attention to this one.

After that we get $25 billion 10s, results to be released at 1pm. 10s are currently holding right in the middle of the 3.57 to 3.71 range at 3.64%. Volume is definitely well below average...especially for an auction day.

"Rate sheet influential MBS coupons are flat. The FN 4.0 is +0-01 at 97-22 and the FN 4.5 is -0-01 at 100-22. Reprices for the worse would hit around 100-16.

Its going to be a slow day for me. Snow....