MBS AFTERNOON: A Modicum Of Desuatude.

Though we were embarking on an ostensible rally earlier in the day, the markets have since realized there are not enough buyers around to mount a meaningful advance.  However, they do expect Fed action to help spreads tighten and rates improve soon after new year.

In other data released today, Freddie is rapidly nearing their $850 bln portfolio cap, ringing in at $805 bln through November.  This too, takes a big buyer out of the market and suggests Fannie is likely in similar shape.  Originally, some had hoped that the Fed would get involved before year end, but the lack of action or even hints of action suggest we'll be waiting into 2009 for that.  The "hope" and "expectation" so far has been enough to keep the sweet sweet nectar from leaking out our ever-jury-rigged sippy cup of treasury spread.

Hopefully it's true what they say about anticipation...  Because that's about all MBS will have to keep warm until the Fed shows up for the date.  Until then, you can expect more volatile day trading patterns seemingly disconnected from logic and other market forces:

Our earlier strength is probably too peaky for most lenders to reprice for the worse, but I suppose a panicky secondary manager might consider it.  Still, the risk zone will be for 4.5's to go under 100-28 for more than a split second or five.

Stay tuned as always, or just fill up on Salmon, find a good cave, and we'll see you in a couple weeks.