I was frustrated last night, looking at the evaporation of higher end rebate...so why is this happening, govies, conventional-everything. 

There is an economic concept that I had to refresh myself on from my old econ text books called "price compression".  (Larry Betag brought this up in a post).  When talking about convertible securities/callable bonds, which MBS's are, in a declining interest rate environment the issuer of the security feels that there is no appreciation potential  for the instrument and that it will be redeemed at the call price.  So they offload the instrument and issue NEW bonds at lower rates which have greater appreciation potential.  So, the MBS market is in an adjustment phase for the next few days, structuring itself for a "new bond price environment."

One take on this phenomenon of "rebate evaporation"  is that the market "technicals" are truly pointing toward lower rates in the near future.   That is good news for us.  The wild card, is that there is soooo  much volatility and so many other factors in play that bonds could lose their allure even with the Government becoming an investor in mortgage backed securities.

Anyway, just some thoughts.