MBS RECAP: Less Volatile Rally


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1:30PM  : 
Fed’s Fisher: Congress, Not Fed, Must do More for Economy
(Reuters) – The U.S. Federal Reserve has no business easing monetary policy further when the real problem facing the economy is fiscal mismanagement in Washington, a top Fed official said on Wednesday.
Speaking for the first time since his dissent last week on the U.S. central bank’s promise to freeze interest rates near zero for the next two years, Dallas Fed President Richard Fisher — known as an inflation hawk — said his main worry was not the possibility that easy monetary policy could send prices spiraling higher.
Rather, he said, his worry is that the liquidity the Fed has already created is sitting on the sidelines as businesses and households delay spending amid uncertainty over tax and regulatory policy. “I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington,” Fisher said in remarks prepared for delivery to a community forum in Midland, Texas.
U.S. “fiscal authorities”, he said, must address the nation’s debt and deficit problems or risk encouraging businesses to move overseas in search of more certainty.
Businesses “simply cannot budget or manage for the uncertainty of fiscal and regulatory policy,” he said. “Monetary policy cannot substitute for what you must get on with doing,” he added, addressing lawmakers directly. “Get on with your job.”
“Pointing fingers at the Fed only diminishes credibility,” he said. “The ugly truth is that the problem lies not with monetary policy but in the need to construct a modern, appropriate set of fiscal and regulatory levers and pulleys to better incentivize the private sector to channel money into productive use in expanding our economy and enriching our people.”
It’s a refrain that Fisher has repeated many times over the last year and a half. It sets him apart from his fellow dissenting colleagues, who cited worries over inflation and the strength of the economy as reasons for their dissents.

11:16AM  : 
Somewhat Choppy Morning. MBS Unchanged. Technical Support
Starting with a look at 10yr notes, we see the 2.25 technical support level still intact with current yields at 2.2319. That was tested once this morning and MBS responded unfavorably, dipping to their lows of the day. Once things bounced back for 10’s, MBS came back as well. Trading is a bit thin on all fronts, but Fannie 4.0’s are at 104-10. As we’d hoped, the ground-holding in benchmarks paved the way for a relatively stable morning in MBS and consequently, rate sheet timing and quality. Despite unchanged MBS levels, rates are slightly improved, and are being released at historically normal times. Things definitely seem slow and uneventful so far today–exactly what this market needs. The fact that bonds are holding their ground despite a 10pt gainer in SP’s is also good, but we would not assume the stock lever to be a thing of the past by any means. Effectively, 10yr yields have done, or at least “are doing” what they need to do in order to fight off a parabolic, long-term reversal. That gives us the impression that the market’s default may be slower and more sideways (or at least “less directional”) until Jackson Hole or until some other piece of data steps up to the plate to shake things up. That’s the current inertia though…. Sideways and calmer… Whodathunkit?!

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