Wednesday 8/20 ... Because You're Probably Curious

So in the course of less than 15 minutes, we've seen a noticeable and somewhat drastic spike in MBS prices.  Not only that, whatever phantom force caused it is not affecting treasuries. 

Although there are other factors that may come to our attention as events unfold, it would appear this spike has at least something, if not everything to do with mounting rumors that Fannie and/or Freddie will start "interacting" with the Fed.  What form that will ultimately take we can't be sure, but it doesn't matter too much.

What matters is that MBS analysts at several major firms tell us that the financial community expects this eventuality to have an immediate positive effect on MBS prices.  Remembers, we've been talking fairly regularly for a few months about "the rubber band" being pulled tight, in that spreads are near all time highs.  So if the markets could but get some measure of confidence in MBS, it would have a sharp positive effect on prices as the kinetic energy of that rubber band is released. 

 Furthermore, we've been subject to "crappy" headline risk recently in that, almost every day, it's more bad news about the firms that are at the very heart of the MBS market.  The fact that today was another one of those days (this morning), and that spreads were gapping out this morning, AND that not only have we turned a corner despite that information, but have done so with respect to spreads as well gives us many clues.

Certainly a contributing factor here is that when spreads get this wide, some value buyers emerge, but not enough to cause what we're seeing now.  The clues indicate that something affected JUST the MBS side of the market and not treasuries.  No tape-bombs for stocks, no scheduled data, nothing much happened after oil report, so on and so on.  So the data must have spoken directly to the MBS market, been bullish, happened intraday, and happened fairly recently.  HOWEVER, we see a somewhat gradual "ramping" beginning at the 11AM hour and spiking soon after.

This suggests that at 11AM, a higher degree of "buzz" began to circulate.  Indeed analysts, for the first time today, released reports discussing the potential "meeting of the minds" in greater detail.  Until then, it had been a an unconfirmed potentiality.  So the ramping would correspond to the "buzz" taking its several minutes to circulate.  As that happened, the first round of traders started to "get in," but then when the data reached a broader circulation, we saw the spike.

Just one theory....

 If there are additional or possibly even better explanations for the spike, we'll bring them to you as soon as we get our hands on them.