In the day just passed, the bond market managed to improve at a fairly decent clip, but the gains were much easier to come by for Treasuries vs MBS.  Part of that was a factor of the time of day that the rally took place (MBS are typically less likely to keep pace with bigger afternoon moves in the bond market) and the other part was the simple rule of MBS tending to underperform when bond volatility is elevated. 

It may not seem that volatility is elevated at the moment compared to some of the past 2 months, but that's only because bonds have been rallying recently.  Rallies still count as "movement" when it comes to volatility.  Simply put, MBS are best able to tighten (aka outperform vs Treasuries) when bonds stop moving around so much and instead hold in sideways, narrow ranges.  There have really only been 2 small blocks of time where that's happened since August's mega rally tipped over the apple cart.

In the chart below, the blue line is the difference in yield between the MBS "current coupon" yield (a calculated value based on prepayment expectations and weighted for MBS production liquidity).  The higher the blue line, the weaker MBS would be performing vs Treasuries.  For the record the high/wide yield spreads seen in this chart are the highest/widest since before the MBS-specific QE3 in 2012.

In the day ahead, we can ask ourselves the question posed in the title.  As the chart suggests, the baseline answer to that question is that MBS won't participate as much in this 1.5-week rally if Treasuries continue gaining ground.  We're more likely to see MBS improve vs Treasuries if this rally pauses.  The x-factor (also implied by the chart) is the potential recurring top in yields spreads (late August and right now).  There's some chance that these spreads will act as sort of a natural enticement for buyers to step in and buy more MBS.

There are no top tier economic reports on tap to move markets today, but the 10am New Home Sales data can occasionally garner a reaction.  The 5yr Treasury auction at 1pm is also a contender, though by no means a guaranteed flash point for the bond market.  The most reliable market movers these days are the unexpected trade-related headlines.  As of this week, it looks like we can add domestic political developments to the list.  That said, the impeachment business wouldn't be a big deal unless a time comes where it looks like 2/3rds of the republican controlled senate would actually get onboard.