Zero Sum Day... MBS Consolidates

Today has been a relatively uneventful day in the mortgage backed securities market. Currently we are even on the day, but that doesn't sum up the volatility we have experienced in the opening hours of trading. Up down, up down, has been the pattern... which leads us to believe investors are a little unsure where they should park their capital.

All in all, it is an interesting week. In the aftermath of the downgrade, we have seen our markets even out slightly. Currently sitting at 104 flat on the 4.0 coupon... we're at a tipping point. Gains would reinforce this point as support, while a sell off would signal this as a point of resistance. The danger we face in today's market is nothing new and has been the ongoing trend now for the last couple of years.

Long term, I expect rates to remain low, short term they move lower or higher at this point in time... in times of consolidation... anything is possible.

Even so, lenders have been slow to give us what is rightfully due, and there is substantial gains baked in the their rate sheets. In other words, pricing should be better than what is currently offered based on the market. Because lenders are hedging, we do have some room, but nothing that is at all comfortable.

Right now we need gains in secondary to reinforce our current position and these low rates. If we don't get it, we may see rates climb back up before coming back down for the winter months, if they come back down at all.

Right now I would say are biggest fear is inflation... and with that fear comes the possibility of the Fed starting a QE3... bad news for us if it happens... bad news for inflation which is our arch nemesis. What we hope comes out of the summit at weeks end is the Fed doing nothing but affirming their keeping rates low. The last thing we need right now is more money infused into our economy... which means inflation... In addition we could use a couple of riots in Europe, or someone in the EU asking for a bailout... Calamity in Europe coupled with austerity in the US... this would be the best recipe for us moving forward.

We shall see.