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.
2s vs. 10s: 248
Dow: -95 to 8667
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