MBS MORNING: Ugly Start, But Not The Ugliest

The Title of "Ugliest start" today would certainly go to treasuries.  But mortgages are not far behind being about a quarter of a point down on the day.

It's inauguration day in Washington. The same problems that dogged the previous administration are awaiting the new Chief, as increasing unemployment and a declining housing picture remain prime targets of the first new programs and initiatives. Coming off last week, MBS has seen higher prices and lower yields on Mortgage-backeds but, no real translation to increased lending as banks still have more details to iron out and more loans to be worked out than capacities can tolerate, presently.

Last week's MBS trading picture saw increased pace to Fed buying and support of primarily lower coupon MBS (41% 4.5%s) as well as greater FHLMC sponsorship (67%). This is a very important indicator for two reasons. First of all, selling was heavy last week (and is again this morning).  The fact that we only lost what we did speaks well for the buying demand.  More importantly is that the "action" congregated around the higher coupons.  So the fact the Fed bought mostly 4.5's should tell us something (if you didn't believe them already).

Overnight, stocks dropped 2% to 3% across both Asia and Europe as the global economic picture remains pessimistic. Oil dropped below $33/barrel as demand remains weak and the U.S. Dollar gains on rates cuts trailing local ones. The U.K. has indicated its intentions to further support its nation"s banks, spending an "extra" $142 billion ($100 billion pounds) with RBS (parent of Greenwich Capital) seen as one of the first beneficiaries as the government increases its stake on loan & asset guarantees. Treasuries crept lower again as rates backed up another eight basis points (10yr note nearing 2.40%). One Month U.S. LIBOR was about one basis point higher on the week and opens this week at 0.3525%.

After the open, Treasuries have continued to sell in grand fashion with the 10 yr down 43 ticks and the 30 yr down 128 count em 128 ticks, aka a whopping 4 points.  Even though MBS are staying strong vs. treasuries, there's only so much "ground standing" that can be done.  4.5's are currently down 7 ticks as the whole MBS stack appears under pressure.

We don't get much data today and indeed on this shortened week.  Housing is the theme with NAHB tomorrow and Starts on Thursday.  The monthly Treasury borrowing needs are revealed on Thursday as well, with 2yr, 5yr, and 20yr TIPs needs revealed for month end settlement. Fed speak is silent today as no monetary policy speeches are scheduled as the nation halts for the Presidential Inauguration regardless.