Last week there was no shortage of news or data. The week opened with reports of a rescue plan put together by the Treasury Department and the Federal Reserve in an attempt to strengthen confidence in Fannie Mae and Freddie Mac, including the Fed authorizing the Federal Reserve Bank of New York to lend directly to the GSEs if it becomes necessary and the Treasury seeking Congressional approval to increase the GSEs' line of credit and to make an equity infusion into the companies if needed. All these measures are seen as temporary for 18 months.

As the domestic markets opened on Monday, the response to the news was initially positive with Treasurys lower and stocks higher. However, it reversed into a flight to quality as worries ramped up about more bank failures following IndyMac's takeover by bank regulators. MBS spreads closed tighter but were substantially off earlier levels. MBS volume was below normal because of all the uncertainty about the government's rescue of the GSEs, the state of financial institutions, housing, etc. Servicers reportedly were adding duration, while money managers were two-way.

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