What's Up With MBS Underperformance Today?
As long as we're not dealing with big, obvious, unique market realities (i.e. financial crisis, QE3, Covid and the aftermath), MBS do a pretty great job of moving the same direction as US Treasuries and by roughly the same amount. Today was not one of those days, at least if we're looking for 10yr yields to set the tone. Our first clue is seen in the 5yr sector, where Treasuries are negative on the day. In other words, the yield curve is steeper. Since the average mortgage doesn't tend to last nearly 10 years, it's not unreasonable to see MBS take pages out of the 5yr playbook. Additional reasons will be discussed in today's video.
Fed MBS Buying 10am, 1130am, 1pm
Retail Sales -1.1 vs -0.3 f'cast, +0.7 prev
Industrial Production 0.9 vs 0.5 f'cast, 0.2 prev
Builder Confidence 75 vs 80 f'cast, 80 prev
Stronger bonds overnight as covid concerns continue to weigh. Better buying in Europe, right at the open. 10yr down 4+ bps ahead of Retail Sales at 1.225%. MBS just barely positive, but still trying to find liquidity on the day.
Additional weakness heading into the 930am NYSE open. Bonds briefly turned negative (MBS still are). Corporate issuance, industrial production, and mostly momentum/technicals as the low yields coincide perfectly with the bottom of February's gap.
Off the weakest levels, but MBS continue to underperform. 2.0 coupons down 1 tick (.03) on the day at 101-11 (101.34). 10yr yields are back into positive territory, down 1.5 bps at 1.253.