The day began with bond markets moving relentlessly sideways, and against the backdrop of Friday's post-NFP move, they still are. In other words, MBS and Treasury levels continue to operate well within Friday's range despite some near-term weakness this morning.
Treasuries are handling that weakness with more aplomb, having never broken yesterday's high yields and currently right in the middle of the 2-day range. MBS, on the other hand, fell to their weakest levels of the week after headlines indicated a Senate deal in the works that would reform Fannie and Freddie.
At issue is the fact that any change in the securitization landscape creates uncertainty for MBS valuations. Uncertainty hurts MBS relative to other fixed-income investments whose futures aren't so cloudy.
While that underperformance persists, the overall trajectory of bond markets has improved following some selling pressure that took MBS into negative territory during the 10am hour. Treasuries are back into positive territory while MBS remain about an eighth of a point weaker. Thy had been down another 3/32nds at their weakest levels.
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