MBS AFTERNOON: Activity Perks Up

by Adam Quinones

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FN30________________________________

FN 4.0 -------->>>>  -0-03   to 100-14   from 100-17

FN 4.5 -------->>>>  -0-01   to 102-03   from 102-04

FN 5.0 -------->>>>  -0-02   to 103-04   from 103-06

FN 5.5 -------->>>>  -0-02   to 103-25   from 103-27

FN 6.0 -------->>>> -0-01    to 104-20   from 104-21

GN30________________________________ 

GN 4.0 -------->>>> -0-02   to 100-17  from 100-19

GN 4.5 -------->>>> -0-01   to 102-11  from 102-12

GN 5.0 -------->>>> -0-02   to 103-23  from 103-25

GN 5.5 -------->>>> -0-03   to 104-00  from 104-03

GN 6.0 -------->>>> +0-00  to 104-14  from 104-14

Trading in the Treasury market has perked up considerably this afternoon as the 10 yr note yield has failed to fall back below the 3.00% high water mark. Many speculate that when the 10 yr yield rises above 3.00%  the Fed will intermediate to help flatten out the yield curve and keep consumer borrowing costs low...which is why so many are placing bets at the moment.

Barring a surprise FOMC decision to allocate more funds to TSY purchases it would appear that the yield curve will be left to move sideways in its current range (sideways time frame is short bc of "stock lever" and economic unknowns).  For MBS, based on historical trends (history beginning November 25, 2008) this could imply that we have seen our high prices come and go (because MBS/TSY yield spreads are at their 2009 tightest points). But then again MBS have had a mind of their own lately so we wouldn't be exceedingly astounded if "rate sheet influential" coupons continued to vacillate higher towards December record highs (anything over 101 on FN 4.0).

All will be dependent on the gyrations of the  yield curve (flatter or steeper)....we are more willing to believe that when 2s vs 10s are over 200bps...that it will be difficult for MBS prices to make noticeable gains (at these MBS price levels that is). If the Fed artificially flattens the yield curve...then we are looking at the possibility of increased interests from real money and levered (borrowed money) MBS buyers. Ahh the dilemma...chase short term yield and stay away from extension risk or protect your portfolio from prepayment risk?

All this means nothing to you if lenders dont pass along gains....primary/secondary spreads are still wide and you are still wondering when you might see a 4.25 paying YSP on your rate sheets. SEE MBS LUNCH for more....