Mortgage backed securities (MBS) prices are higher (rates lower) in volatile trading amid speculation banks may need additional infusions of cash after the stress tests of balance sheet strength are completed.

MBS markets are again taking their lead from the stock market this morning, DOW is down 100pts so money is moving out of equities and into fixed income assets like MBS.

The Fed is prepared to buy U.S. government securities today and tomorrow in an effort to cut borrowing costs.

30yr mortgage rates rose to 4.87% from 4.78%, a record low, last week and are 197bps above the 10yr note, widening from 146bps two years ago. That half a point would be welcomed by all. No economic data will be released today, but the rest of the week will be busy.