NO MORE OCTOBOXES!!!

The FN 5.5 MBS closed +5/32 at 100-01 after briefly trading above our early morning resistance level of 100-02.  A portion of the mid-day gains can be attributed to JOHN PAULSON BUYING MBS.

Overall, volume was about half of the normal average...there is no clear reason but one might assume that most working money's attention was turned to Capitol Hill today. We had Paulson, Bernanke, and Bair giving testimony plus automaker drama...ugh expect more automaker bridge loan debate. Remember the more boxes you see on CNBC, the more panic there is in the markets :-). I don't ever want to see the OCTOBOX again!

The NAHB's home builder sentiment Index dropped to a record low of 9 in November from 14 in October. Consensus was predicting the index to hold at 14. The index on current sales conditions fell 6 points to a record low of 8, and the index gauging traffic of prospective buyers fell to a record low of 7 from a revised 11.

The graph below provides some key resistance and supporting MBS price levels as we approach the end of the fiscal year. The downward MBS trading range has continued to tighten...as you can see we have tested the resistance multiple times and have yet to break through with any conviction. As we expect this volatility to continue at least until Jan.1, following the current trend is recommended.

Wednesday's data calendar:

The MBA"s Mortgage Application Survey at 7:00

CPI (Oct) at 830AM: CPI is expected to be down 0.8% with the core up 0.1%.

Housing Starts (Oct) at 830AM. Housing Starts are expected to drop to 780k after coming in at 820k in September.

Two Fed officials are scheduled to speak at CATO's 26th Annual Monetary Policy Conference: "Lessons from the Subprime Crisis."

Vice Chairman Kohn will talk at 9:00 on Monetary Policy and Asset Prices Revisited. Richmond Fed President Lacker speaks at 1:30.

Good night MBS watchers!