Tuesday 9/30 ... Graph of the pain... (and a sneak attack from the ninja)

Here's a 2 day intraday chart for you on the FNMA 5.5's.

He's wiley today folks, that MBS Ninja. That's what we need during market upheaval--a good read on causes and implications from a wall-street level.

He reports we're seeing a mass liquidation of fixed income products as the markets are content to forget what had them down yesterday. In addition, the breaking news we referenced in the last post is serving as a big buy-side impetus for equities. Naturally, FI gets tapped to fund that effort, and although MBS are still outperforming treasuries, that whole side of the market is suffering.

Compounding the problem is a very thinly traded market (aka, low volume). With the massive decrease in rates earlier in the month lender hungrily filled up their warehouse lines and much of the "action" has already taking place, or rather, the action is taking place earlier than normal with a higher than expected supply from originators.

What is disturbing is that we are not capturing any bid from the risk crowd. We'd spoken in the past about how equities and MBS can both gain at the same time when they are both "lumped together" in the sense that they both represent risk. However, with yesterday's massive sell off, equities took it on the chin whereas MBS actually gained. Today's stock rally is not inviting other members of the risk crowd along for the ride. It's as if equities had an experience yesterday that was unique and cannot be extrapolated to apply to other risk product. Too bad, so sad for us.

But given the previous data in the month, the volume situation, the bailout limbo, etc..., this may not be the end of the world if we can recapture some tomorrow. For today though, we are quickly finding out just how far we can fall past purgatory's floor.

5.5's are at 99-19.

Unless you're counting on the early days of October providing some relief and the potential passage of a bailout serving as a big shot in the arm, well, it probably is too depressing if you're not in that group...

But seriously, short termers, as in those who need docs this week, if you haven't been hit with a reprice yet and didn't already lock on one of the several previous alerts, this is your official warning. Lenders are about to hit you for more at one time than you have seen in a long time. If it hasn't happened yet, it will soon.