Thursday 8/14 ... Stern Gives Us A Boost

After Fed's Stern says continuing weakness in economy and pressure on labor market, we're seeing some slight additional interest on the "buy" side.

6.0's are up 5 ticks on the day now at 99-27.

Sellers are in demand and in control.  We've seen ask prices steadily higher than bid prices.  When sellers are numerous bid vs ask will often be much closer and most of the time dead even (i.e. 99-27/27 as opposed to 99-27/28+).

Volume on the day is in line with monthly averages so we are not left wondering if this "bump" is being driven by sparse market participation.

Want to see the bump?  Don't take me word for it, let's go to the map! 

A bit of volatility after the announcement.  It appears that several buyers got a little antsy and thought it wise to cover short positions.  Sellers took advantage of this by bumping up the going price by 3-5 ticks "on the fly" in that sellers held the cards and could say, "if you are so eager to buy, i'll get you out of the market right now for 4 ticks over the going price, or you could take your chances."  

This created an artificial 'blip' in the curve that descended back to normal and then slowly climbed to the levels where the purchase took place.  So everyone ended up getting the same deal they would normally get, but the buyers were not willing to risk a steeper rise in price as they tried to locate another seller.  

At any rate (pun intended), this is good at least for the rest of the day.  it's not like we werent' floating intraday anyway, but this greatly increases the likelihood of reprices for the better.  We discussed this morning that some lenders might reprice for the better if we could simply hold a sideways pattern.  We have, and then some.  Those lenders, but especially everyone else will probably heavily be considering a reprice for the better.

We're getting close to PAR on 6.0's.  Since fed chartered banking institutions are not allowed to hold any premium paper (coupons valued over PAR) on their books, we normally see a fair amount of resistance when trying to break through the PAR level on current coupons.  It requires buying interest to be drummed up from other potential buyers like real money, fast money, overseas, and servicers.

The moral of the story is that if you are looking short term, late this afternoon, or early tomorrow morning is, at least, not a "stupid" time to get out of the market.  However, I maintain, the longer your timeframe between now and when you'd be forced to lock, the more likely it is that floating will be rewarded.  The caveat always is that headline or event risk can derail that dream in the blink of an eye.  Stay vigilant.  Stay tuned...