T-Bill Auction, of All Things, Helping MBS to New Highs; Impact Fading Now
This may be one of the first mentions of short term T-bills in an MBS Live alert, and certainly the first time that they've been credited as a relevant market mover. That's because they simply don't move markets in a way that impacts MBS--not until just now, anyway.
It's this whole "default" thing. Wires were out earlier today about the 1-month T-bill rising above LIBOR for the first time in 12 years. As the deadline for the debt-ceiling approaches, the shortest term debt gets hit the hardest. When short term debt gets hit, it's not uncommon for longer term debt to experience some level of benefit. The recent move into positive territory for MBS is no more complicated than that.
T-bills were already hurting, and they got hurt some more after the auction. 10yr Treasuries experienced their heaviest volume of the day and best gains in concert with the T-bill weakness. Fannie 3.5s moved as high as 101-27, but have since fallen back to 101-25, 2 tick up on the day.