Ugh....the 10 yr note yield is 20bps higher while 2s/10s have moved 24bps steeper to 274bps. The 10 yr TSY note yield has however found some support at 3.70%...helping "rate sheet influential" MBS coupons find a little level ground heading into the close....
Unfortunately the damage is done and lenders have repriced for the worse...repeatedly. New supply offerings from originators have not played much of a a role in the bid deterioration today...this is straight up extension risk induced portfolio reorganization. That said...$6bn has been dumped on market makers...the majority of which the Fed has only provided a limited bid (as TSY yields continue to rise). This implies a general lack of liquidity has added momentum to today's MBS selloff...which would also explain the "gapping out" (widening) TSY/MBS yield spreads....
Here is the yield spread between the FN4.5 and US10yr....it shows that market participants are not allowing any percieved strength (relative value) to last long. So now we are dealing with a "sell into a rally" menatility too...bummer...thats another road block (more short positions open).
At this point, the radical bounces we have seen over the past 4 sessions combined with the bond market's reactive repositioning (new options open) implies that the Treasury market is/has become a marketwide sentiment indicator...meaning the range trade (based on perception of super liquidity) that once moderated losses has been overrun by illiquid trading conditions (very bad when market moves in herds). Rumor and speculation about "data to come" will now feed the price behavior of fixed income instruments...which can be a terribly bad thing if economic data is better than expected. I tell you this because MBS gains will go no further than TSY gains...we are at the mercy of the steepness of the yield curve! On the bright side...when prices fell to these disocount levels last week we witnessed bargain buying heat up which added steam to the rally. (This further backs the notion that we could be in for some illogical rate moves)
One thing is for sure...mortgage rates are higher...and the only phone calls originators are receiving are from frustrated borrowers asking where their 4.75% rate went and when they can expect to get it back. It makes you think that when rates do fall back below 5.00%... that applications will skyrocket (relatively) as borrowers look to get off the fence as soon as possible.
PS for Borrowers..if your loan officer told you they were unable to lock your loan during the sell off last Wednesday...they weren't lying....lenders completely stop accepting new commitments.
Stocks will close near their highs of the day..up 2.75% to 3.00%ish....even on the day when the biggest bankruptcy EVER occurred.
MBS Market Alerts
