Our benchmark FNMA 5.5% mortgage bond saw another day of extreme volatility, ending 88bp lower to close at $99.34 after trading in a wide 91bp range. Bonds were under pressure from the beginning as traders knew added bond supply was coming from the Treasury as it steps up its funding operations for the recently passed $700 billion bail out plan. The Treasury auctioned $20 billion in reopened 10-year bonds and $30 billion in cash management bills while the Fed funded $37.5 billion in its Term Securities Lending Facility. Stocks plunged lower for a 7th consecutive day as shares of financial and insurance companies led the market lower despite early positive sentiment generated from good 3rd quarter earnings news from tech giant IBM. Shares of regional banks and insurance companies were particularly hard hit after Treasury Secretary Henry Paulson voiced a warning that 'the economy faces difficult challenges' and that 'more banks will fail before credit conditions improve.' Investors have become greatly concerned over continuing deterioration in the credit markets. The credit markets continue to remain frozen with the LIBOR/OIS spread widening by 25bp from yesterday to 3.46% while the three-month U.S. dollar LIBOR rate climbed to 4.75% from yesterday's 4.52%. The overnight U.S. dollar LIBOR rate eased slightly falling to 5.09% from 5.38% while overnight Euro LIBOR rates fell to 3.94% from yesterday's rate of 4.35%. This suggests banks are only willing to risk lending overnight to one another while the pool of money available for loans between banks is shrinking. The stock market is clearly in capitulation mode with the S&P 500 Volatility Index trading at 64, higher than the level seen during the Crash of 1987. Today's stock market action showed when investors want out, they want out and there is nothing that can stop them. After advancing about 150 points, the Dow swung 868 points lower to lose 678 points, finishing at 8,579. The broader S&P 500 Index was hit with a 75 point loss to end at 909 while the NASDAQ Composite Index fell 95 points to end at 1,645.