Mortgage backed securities (MBS) prices opened higher, but have since fallen in volatile trading; FNMA 4.0% coupon 99.64bps, -2bps. MBS markets will close early at 11am pt before the long weekend. A short session can produce sharp price movements. Yesterday investors sold MBS for a variety of reasons: Fed held steady its level of Treasury purchases, possible downgrade of U.S. credit rating, Treasury Department announced $101 billion in auctions next week, meaning additional supply for the market to absorb. Money fled offshore in a rare triple play; Stock markets down, Treasury yields up, and the dollar down. The decline in the dollar, down 0.8%, and with it the risk of inflation gave a boost to commodities, including oil & gold. Demand for commodities as an alternative investment increases as the dollar drops as an inflation hedge. Average 30yr fixed mortgage rate fell to 4.82% from 4.86% a week earlier as the Fed's program to buy as much as $1.25 trillion in MBS has pushed rates down, twice hitting 4.78% in April. The central bank's purchases from Fannie Mae & Freddie Mac have freed cash for the federally controlled companies to buy more loans from lenders, improving liquidity for homebuyers. No economic data will be released today. TGIF!