Our benchmark FNMA 5.5% mortgage bond tried to rally early in the session by moving 82bp higher from a lower open at $97.81 but then swung 119bp the other way to resume its downward trend with a loss of 81bp to close at $97.44. The bond market fought lower bond trading volumes and news of a global coordinated effort by the world's major economic powers to guarantee inter-bank loans and allow governments to purchase stock in troubled banking firms. The government bailouts put investor concerns over the credit crunch more at ease while many Fed analysts feel the Fed will cut short-term interest rates by 25 to 50bp at their next FOMC meeting at the end of October. This sentiment pressured bonds lower as did news of S&P ratings downgrades on debt issuers. S&P downgraded 227 issuers affecting $1.8 trillion of rated debt in U.S. dollars and $1.3 trillion rated in Euros. The day's big news came from the Bush Administration including Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and FDIC Chairman Sheila Bair when they announced a plan to use $250 billion of the $700 billion appropriated in the financial rescue bailout bill recently passed by Congress. The plan will allow the government to buy and temporarily hold preferred stock in major American banks and thrifts. The government will begin by buying stock in nine of the largest banks including Bank of America, JPMorgan Chase, and Citigroup. Other plan features include allowing the FDIC to temporarily guarantee the senior debt of all FDIC-insured institutions and their holding companies while the Federal Reserve implements their Commercial Paper Funding Facility (CPFF) program. The CPFF will fund purchases of commercial paper of 3 month maturity beginning October 27 in an effort to support the commercial paper market. This plan is designed to improve inter-bank lending and thaw frozen money and credit markets. So far there has been a favorable reaction among banks as inter-bank lending rates as measured by LIBOR continued to ease by falling to 4.635% today from 4.7525% yesterday and from last Friday's level of 4.81875%. The stock market rallied strongly on the plan's announcement but traders quickly stepped in to sell to lock in gains from yesterday's massive move higher. The Dow traded in a 709 point range before falling 76 points to close at 9,310. The broader S&P 500 Index lost 5 points to end at 998 while the NASDAQ Composite Index dropped 65 points to finish at 1,779.