Mortgages surged midweek on an announcement from the Federal Reserve of a new program to help ease the liquidity crisis. Specifically, the Fed announced an expansion of its securities lending program - a new term securities lending facility (TSLF). Under the program, the Fed will lend to primary dealers up to $200 billion of Treasury securities secured for 28 days instead of overnight, as they were in the current program (see story p. 15).

Active buying emerged from hedge funds, insurance companies and money managers. This pushed spreads on 5s and 5.5s to more than a point tighter shortly after the news was released. The strong tightening, along with more rumors regarding Bear Stearns's liquidity situation, led to a brief bout of profit taking and moved spreads modestly off their tights. Spreads held tighter into Wednesday in moderate two-way flows and ranged from 21 ticks better to the curve in 5%s to 14 ticks tighter in 6%s at midday.

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