If you have been watching the 10yr TSY note yield continue
to rise and have been keeping up with blog posts.... you would have most likely
assumed the FN 4.5 MBS coupon was still in selling mode. But selling activity
in the production coupon side of the MBS stack has leveled off and has begun to show signs of a slightly more stable range (in a downward trend unfortunately). <---important
As previously pointed out in the comments of last post, the
10 yr TSY sold off this morning and the FN 4.5 was moving lower along with
it...at a faster pace than that of our benchmark big brother though (yields
spreads were wider). As we neared the lunchtime hour, and the UST10YR yield continued its rise, the relative cheapness factor helped moderate further MBS price losses.Which led to the tighter trading range illustrated above...
We must point
out that there really isn't much activity going on in the MBS market
today....in both primary and secondary mortgageland. Loan officer's
phones
are all quiet as consumers await headlines reading "Mortgage Rates Ease
After...." and in the loan securitization marketplace trading flows are
sluggish
as market participants are happily waiting it out to see what comes
next in
terms of headline news. Which brings us to a caveat within the "relative cheapness" theory: the slow start to the trading week leads us to believe that the only thing governing further MBS losses is the perception of relative
cheapness(bargain buying)...besides that...it doesn't feel like there is much
of a floor under us. Furthermore, because of such a swift shift in the broad based interest rate bias, the +90/10 "NEUTRAL" zone will need to be reinforced repeatedly or it may to be relocated higher....that would be very bad! So whether or not the current yield spread levels are indicative of richness vs. cheapness is somewhat unknown. We really are right in the middle of a sentiment shifting event...waiting.
Mortgage world has essentially come to a stand
still...with a bias to sell whenever outcomes come into question. Still waiting for new guidance..until then, the market
considers all the possible outcomes and prepares for the worst.
MBS QUOTES
2s vs. 10s: 248
Dow: -95 to 8667