What A Weekend!

You might not be able to ask for a more action packed weekend for the financial markets:

- Chase buys Bear Stearns for $2 / share with a not-insignificant amount of help from the FED

- Fed executes the extremely rare weekend rate cut to the discount window of .25% (last time was 1979)

- Fed opens a Term Lending Facility open to MBS dealers, and says it will be open as long as necessary

- In the process of the previous three headlines, FED makes some tacit and explicit statements regarding its committment to providing liquidity for financial markets (good for MBS)

- In breaking news, Industrial Production falls .5%, with Capacity Utilization down .6% 

As you can see, MBS have responded favorably to the data.  Taken by itself, Bear Stearns facing bankruptcy would not be good for MBS, but that third parties with deep pockets are stepping in is of more consequence.  It signals that there may be some measure of hope for liquidity in the MBS market, even if some criticize the FED for taking on too much risk.

Though the rest of news feels dwarfed by these giant developments, there is one other significant point to consider that doesn't readily present itself regarding the FED's impending rate cut tomorrow.  Yes, we know they will cut, but after the last three days, the consensus is moving to a 1.0 cut as opposed to a .75 cut.  Here's why that's significant: Fed Funds Futures have priced in a 1.0 cut and the MBS market knows it.  We would normally see MBS "afraid" of an overly-aggressive cut due to inflation, so the fact that there is still strong demand for MBS this morning is very good news.

Rates won't be out for a while so check back here for lock/float discussion in a couple hours.  Unless something drastic happens in the next two hours, you should be liking this morning's rates, and considering the resiliency (albeit with help) of the MBS market today, this week looks promising.