Curve Steepening Helps MBS, but Keeps Broader Indecision Intact
We're looking to the first few days of April for some guidance as to how bonds are going to treat the current attempt to hold a ceiling in rates. One issue at the moment is the vastly different paths walked by longer vs shorter-term rates. For instance, 2yr yields were almost 4bps lower at the 3pm close while 10yr yields were more than 3bps higher (read: curve steepening). Those gains in the short end of the curve helped MBS (which are appreciably shorter in duration than 10yr Treasuries at current levels). While that's "nice" from a relative performance standpoint, it doesn't really comment on how broader trends are shaping up in the new month. We may be waiting for Wednesday afternoon's FOMC Minutes before getting a stronger signal about the next shift.
Fed MBS Buying 10am, 11:30am, 1pm
Mixed overnight with modest weakness in Japan and strength in Europe. Curve is steeper with 10yr roughly unchanged and 2yr down 3.4 bps (still inverted by 4bps though). MBS are benefiting from the steepening with 3.5 coupons up just over an eighth of a point.
Selling picked up after the 9:30am NYSE Open with "new month" tradeflows moving out of bonds and into stocks. 10yr up 3bps to 2.421 and MBS down 1-2 ticks (0.03-0.06), but more than an eighth vs AM highs.
Steepening trend continues with longer dated yields near the day's weaker levels and shorter-dated yields in positive territory. MBS are outperforming 10s with 3.5 coupons up 1 tick (0.03) at 99-29 (99.91). Fairly uneventful day, and still well inside Friday's range.