MBS MID-DAY: Treasuries hit Best Levels in More Than a Year; MBS Not so Much


There are plenty of big stories right now.  In terms of broader markets, last night’s announcement of US air strikes in Iraq was clearly the biggest.  That was the catalyst for a move that ultimately took 10yr yields to 2.349 in overnight trading.  Ongoing headlines surrounding the Ukraine/Russia and Israel/Hamas conflicts are also contributing to volatility.

The big story in the mortgage-specific world is the severe and prolonged level of underperformance on the part of MBS.  In other words, Treasuries are gaining.  MBS are just barely in positive territory.  For instance, 10yr Treasuries are up 10 ticks in price while Fannie 3.5s are just up 2 ticks. 

Of course it’s only natural for MBS to gain less ground when bond markets are rallying for geopolitical reasons, but this is a bit excessive.  Not only that, but with the roll coming tonight, the gap between current prices and recent points of reference will only be that much wider.  For instance, the last time 10yr yields were near 2.40%, Fannie 3.5 prices made it to 103-14.  This time around, they’re at 102-23, and the roll usually makes for an 8-12 tick drop, meaning they’ll be roughly a full point lower by comparison.

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