MBS RECAP: Held Up Well Into Selling, Even Better Into Rally

After reaching a decision point around 11am, bond markets have held their ground against further weakness for now. Given that MBS had traded such a narrow range this morning, those “weakest” levels were only 6 ticks from session highs, allowing Fannie 3.0s to trade in positive territory at the moment, closer to their best levels of the day now.

Treasuries also bounced at 11am, but merely made it back from 1.73’s to 1.72. 10yr yields had been as low as 1.692 earlier this morning.

Unrelated to the market movements, but noteworthy with respect to the big picture, Philly Fed Pres Plosser spoke earlier, saying that “increasing monetary policy accommodation is neither appropriate nor likely to be effective in the current environment.”

Although Plosser isn’t in favor of QE3, he doesn’t share the same battle cry as many of its opponents regarding inflation, noting “although higher gasoline prices are likely to push up inflation in the near term, these effects should be transitory. Thus, I do not see much evidence that we will have an outbreak of inflation in the near term.”

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/275976.aspx

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