It has been another rough morning for your long duration "rate sheet influential" MBS coupons. The Fed is the only supportive influence for lenders looking to sell their supply of loans as servicers (convexity crowd), real money (banks and insurance), and leveraged accounts (hedge funds) are all avoiding anything to do with EXTENSION RISK.
Several lenders have repriced for the worse...at this point the best rate we are seeing (not at cash window/mandatory commitment) is 4.75% on a C30 product...without any LLPAs...whereas last week 4.50% was still attainable. Total bummer...GUTFLOP should have your wallet protected right?
The 1pm auction of $35bn 5 yr notes is up next. Heading into the auction.....this issuance is setting up to be CHEAP for the investment crowd (not for Treasury). If the market is truly worried about inflation and the possibility of an S&P ratings cut then the 5 yr maturity may see less demand. If these recent market sentiment swings are nothing more than short term headline news pinpointed profit positionings...the market will come to its senses and see that this auction is well worth the taking....especially with the Fed buying up these maturities in open market operations
Here is a breakdown of the past seventeen auctions...
2s/10s: 261.87
5 yr yield : 2.27
10 yr yield: 3.53
MBS Market Alerts
