The S&P Downgrade

When Friday's tape bomb hit the wire we found ourselves faced with an expected surprise. Yes, the possibility of a downgrade had been floating around for some time, but the actuality of it happening was a reality not many were prepared to face come Monday.

Well here we are, and the question playing out in everyone's mind over the weekend: "How are the markets going to react?" is being answered.

Equities markets and gold were an obvious call. The stock market was going to fall, and gold was going to go up. The long term markets (which coincide with the long term projected downgrade) are a different story. Would treasury's sell off, what about the MBS and interest rates, were we going to see a sell off and an immediate rise in rates?

As it turns out - at least the immediate result - people are flocking to treasuries and mortgage backed securities. After Friday's sell off where we lost a full point (32 ticks) in what I have deemed typical profit taking (to be expected after a run like we had), we are now up a 16 ticks, making back have the losses we incurred on Friday.

This tell us that while the downgrade is having sweeping effects on the equities and gold, the fixed markets have actually benefited and are improving. will this trend continue? Who is to say... two and a half hours into trading this news is not nearly long enough to draw any conclusions.

What does appear to be true is if you were looking to finance a home, and were concerned about your interest rate options rising substantially, doesn't look like that's going to happen.

But get it done while you can volatility is rampant, rabid, and wild right now... Fannie Mae and Freddie Mac were downgraded this morning but with no ill effect to our trading markets thankfully. Point is, nothing is a sure thing at this point in time. Perpare for the worst and hope for the best... locking now and relocking if the market improves is not a bad strategy. You'll be patting yourself on the back if the market falls out from under us, and we all know a bird in the hand...