Wednesday 8/20 ... Confirmation and additional updates

Floaters rejoice...

This is a great day for the "Float Club."

Though it wasn't named such when it began nearly a month ago now, I know that a good portion of readers have been patiently waiting for the "if you can wait 2-3 weeks" statements made 2-3 weeks ago to pan out.

Even though this occurred by late last week, as of right now, "pan out" they certainly have.  This afternoon is the emotional release of a high degree of "pent up" spread, headline risk panic, and tradeflow concerns.  Break it down:

1. Spread - was nearing all time highs.  Higher spread = more attractive to buyers.  Still no one bought.  How high could it go?  Everyone (mainly institutional investors) was waiting for spread to top out before getting back into things.  We saw a hint of that Friday before last, but it waned quickly.  This spread was like the proverbial rubber band being pulled tighter and tighter.  Only a matter of time before it snaps back.
2. headline risk panic - This is almost all we've talked about recently.  There's scheduled data (event risk), and unscheduled data (headline risk).  When an analyst comes out saying bad things about Fannie and Freddie, that is the type of headline risk that can negatively affect MBS.  With confirmation today that Freddie and Ben got together for some afternoon delight, much of that headline risk panic is allayed.  Well, perhaps not much of it, but enough of it that a substantial amount of buying interest in agency MBS has been generated.
3. Trade flow concerns - we seldom get a chance to talk about tradeflow concerns unless we are getting insider information from our team of ninja's in the enemy's castle.  One of our ninja's got back to us today letting us know that servicers have been waiting for their time to strike and they, at least to some extent, are betting on the bottom price levels being behind us.  It's the same philosophy as most stock trading wisdom touts: don't buy just before the bottom, but rather, just as the rally begins.  Long story short, servicers believe the rally is just beginning.  For the record, they are not the only ones as money managers (and Asia later tonight undoubtedly) will want to get on board with this.  It's just that servicers are in big on today's bid.

Long story short, this is certainly a fair starting point of what could be the momemtum shift we've been hoping for.  Let's hope it isn't sabotaged by a reemergence of panicked headline risk.  Unless you have to order docs today or tomorrow, today's momentum suggests we all attend "Float Club" meetings until the market gives us reason to lock.  As with any day where there is a steep steady gain into the afternoon, the MBS curve will have to hold these gains overnight and into tomorrow morning before lenders will be willing to pass on all of the gains they have experience to their rate sheets.

Whatever the case, to those of you who fervently stayed in the battle (kept floating) despite continually getting a barage of negative price action, today is your reward.