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Good Morning,

On Monday, mortgages leaked 6 to 8 ticks wider to swaps - a continuation of their recent widening trend. Origination was high at 2.5 bln to 3.0 bln but was met by good buying, mostly from the Fed. The market might be getting a little concerned with the temporary nature of Fed buying, which has only been promised for the first two quarters of this year. Speculation that the market may be overbought could be weakening support for mortgages at these prices. At the end of the day the FNCI 4.0 was -1/32 at 102-1 and the FNCL 4.5 was -2/32 at 102-06.

The headlines today will focus on the most recent survey of economists which predicts annual domestic growth of -1.5% this year and a global recession. We can expect stocks to have another tough day on that news, with the only bright spot in sight being a pending stimulus package which seems to be gaining momentum. This morning stock futures are down already - Dow futures are -40 points. The only notable economic report today will be the US trade balance report for November. The US trade balance is expected to decline -$51 billion and would then reach its lowest level in 4 years. Falling oil prices have had the biggest effect on this number, but slowing economies at home and abroad should add a bit of volatility to the report going forward. Bernanke will speak at the London School of Economics today and investors will be looking for a clear picture of the Fed's strategy in this crisis. The Fed might be considering expanding their asset purchase program to include notes and bonds.

GN supply was pretty heavy yesterday and international accounts, who usually are its biggest buyers, were on the sidelines which caused GN/FN spread to tighten. Premium GNs are trading back of FNs because had some larger prepayments reported last month. GN 6.5 are trading -14 of FNs. MJMs have experienced incredible tightening recently due to a lack of supply, 5.0s are trading -26/32s versus GN1s and only two months ago were trading -70/32s of GN1s.

Yesterday, the equity markets continued to sag, ahead of expectedly recessionary economic reports this week. The Dow was -125.21, the NASDAQ -32.80, and the S&P -20.09. With oil remaining at depressed prices and no good news in sight for equity markets, investors have turned their attention and their money back to the relative safety found in treasury markets. At the end of the day the 2yr was +1.25/32 at 0.747 and the 10yrs was +30.5/32 at 2.304.