Morning Report - liquidity is drying up in the TBAs

Vital Statistics:

	Last	Change	Percent
S&P Futures	1679.7	-0.9	-0.05%
Eurostoxx Index	2716.0	-2.0	-0.07%
Oil (WTI)	109	1.0	0.90%
LIBOR	0.265	-0.002	-0.56%
US Dollar Index (DXY)	82.68	-0.140	-0.17%
10 Year Govt Bond Yield	2.52%	-0.01%
Current Coupon Ginnie Mae TBA	104.2	-0.2
Current Coupon Fannie Mae TBA	103.9	0.0
RPX Composite Real Estate Index	200.8	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.37

Markets are weaker this morning after a mixed bag of earnings. GE beat, while Mr Softee missed by a country mile. There is no economic data this morning. Bonds and MBS are flat / down small.

Liquidity has been drying up in the TBA market, with bid / ask spreads increasing to 7 ticks on the higher coupons. Yesterday, just over $3.2 billion worth of TBA traded, which made it the second lowest volume day of 2013. What does this mean for you? Thin markets can be volatile. We will likely see more re-prices during the day, and aggregators will fade their bids to account for lousier execution on their hedges. 

Ever wonder how the government sets G-fees? Well, here ya go..

Wonkish piece, but sheds light on the labor force participation rate and why it isn't coming back to previous levels. This has implications for the Fed, in that it won't take much in the way of job growth to keep moving unemployment levels to where the Fed will start thinking about tightening. While the Fed pledges to use a holistic approach, we could be getting to 6.5% unemployment the hard way. Which means, don't expect super robust recovery - the population is aging and that is a drag on growth and spending.