MBS MORNING: No Fed Yet....

After a wonderfully delightful MBS rally (not rate sheet rally) yesterday, the stack is taking a pause from the down in coupon craze.

Fn 4.0-> -0-09  to 101-02

Fn 4.5-> -0-03  to 102-15

Fn 5.0-> -0-03 to 103-07+

Fn 5.5-> -0-04 to 103-16

Fn 6.0-> -0-04  to 103-26

 This morning we are indeed battling one of the few barriers standing in the way between the float boat and 4.0% mortgage rates....profit takers. In light of the recent rapid rally this selling is not unexpected; the indicative uncertainty is now...how will the Federal Reserve react to the sellers having their way with the buyers? So this is the first test of the MBS buying program...today we begin our study of the Federal Reserve's puchasing habits. What conditions warrant the swiping of the US Black Amex card? Will cheaper MBS prices lead to speculative buying ahead of any Fed purchases (multiplier/bandwagon effect)? What does the Fed consider attractive spreads? Does it matter? Will buyers sit and wait for the Fed to intervene? As of 9:40 this morning we don't know, but we are attentively observing the action. Our sense is any retracements/profit taking/hedging will not last long...the current coupon will continue its strut down the stack.

On the news front...

Mortgage Application Activity slowed in the week ending January 2. According to the Mortgage Bankers Association, the Refi Index fell 12.3% to 5904.5, while the Purchase Index rose 7.3% to 344.2. No big whoop...Christmas and New Year's have precedence over refinancing...especially when interest rates are expected to push lower in the future. Pipeline managers and support staffers should be preparing themselves for an end of month  onslaught of activity as most refinancers and purchasers will attempt to "wait it out" for lower rates.

According to the ADP National Employment report the US economy lost 693,000 jobs in December. Expectations were for 450,000-500,000 job losses...yes we turned green on the data release too. This data's predictive power (predicting the BLS survey that is) is debatable, so it should be noted that the computation methods of this month's data included some revisions that attempted to correct for previous inaccuracies. We wont know til Friday how the modifications effect the correlative relationship between ADP and BLS employment reports. FYI the BLS releases Non Farm Payrolls (and unemployment rate) on Friday...consensus is for 500K job losses after 533,000 in November.

Stay Tuned for updates and alerts...trade flows are light but we are beginning to see some buyers test the waters