MBS UPDATE: IFs and WHAT IFs

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All eyes on Washington DC.  Headline news trumps all tomorrow!!!!

5pm Marks...

FN30_________________________                GN30______________________

FN 4.5 -------->>>> +0-13 to 101-00                    GN 4.5 -------->>>> +0-10 to  101-06

FN 5.0 -------->>>> +0-10  to  101-30                  GN 5.0 -------->>>> +0-09 to  102-06

FN 5.5 -------->>>> +0-07 to  102-14                   GN 5.5 -------->>>> +0-07 to  102-20

FN 6.0 -------->>>> +0-07  to  103-07                  GN 6.0 -------->>>> +0-06  to  103-04

The Senate is expected to vote on the Stimulus package any time now and Tim Geithner will announce a plan to save the economy from impending doom at 11am . DC is the financial capital of the world right now!

CNBC just broke a story that a "Bad Bank" is NOT included in Geithner's plan. This is according to a source familiar with the plan". Waiting on more details to go any further....either way we need all those non-marketable assets removed from balance sheets to slow the pace of economic contraction.  A good start would be to figure out how much those assets are worth...make a market and see what happens from that point!

IN THE MEAN TIME....markets just kinda waited around today. Stocks closed flat after an up and down session...bonds continued to price in supply worries...and MBS outperformed on normal Fed supported/"latcher on" trading volume.  Profit takers remain so don't get overly excited about floating...follow GUT FLOP. MBS market participants are awaiting some sort of headline event to give them more investment direction. MBS buyers remain at the ready to move down in coupon but will not move their money until they are adequately convinced that mortgage bankers will deliver 4.0 coupons. If the Federal Reserve does decide to buy longer term TSYs that is a positive for MBS markets as spread buyers will flock to MBS. The stack progressively improved throughout the day and reprices for the better were received. Some of the big boys didn't pass along any gains so in the event MBS is green tomorrow they will owe you some YSP.

Tomorrow is the first leg of quarterly refunding.  The Treasury department will auction 32 billion 3-year Treasury notes at 1:00. This first auction will help set the tone for the remaining refundings this week. Besides Geithner's 11am speech he is scheduled to give testimony on "A New Plan for the TARP" at a Senate Banking Committee hearing at 2:30pm. Before that hearing Ben Bernanke will sit before the House Financial Services Committee at 1pm tomorrow. His testimony is titled "An Examination of the Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in the Current Financial Crisis". I can't wait to hear Ben's statement.

I know everyone wants to know what is going to happen to MBS tomorrow and what the prospects are for a huge rally. My response is: who knows. There are too many "ifs" and "what ifs" to promote a theory. All I can say is the US Government has committed to spending a large amount of money to slow the pace of economic contraction...this includes $600bn for mortgages.  Whatever the plan may be I find it hard to believe they will step on their own toes....we are clearly nearing a crossroads though. Be ready for anything!

President Obama speaks at 8pm tonight. Listen to what he has to say and we can go from there...