Everyone’s a buyer today, and the Fed is taking a good deal of the existing supply in 2 operations (one that passed at 11am and another coming up at 2pm), simply solidifying the omnipresent buy-side.
MBS are merely along for the ride, at least as well as they can be (or as well as they are willing to be) given the even thinner trading conditions in the MBS market. Gains have been slow going compared to Treasuries and reprices merely trickling in so far. Not what you’d expect at these price levels, but expect lenders to be increasingly resistant to pricing in MBS gains when rate sheets are already at record rebate levels for “high 3’s” Best-Ex rates.
By way of a parting thought, yesterday we said the following with respect to 10’s possibly getting into the 1.8’s, “Although we’re concerned with the question of “where do we go from here if not back higher in yield?” things are good for now.”
As it turns out, it looks like the answer to that question is “they go a bit lower.” This is a classic example of markets taking the prevailing “common-sense” and turning it on its head. We thank the markets for reminding us that they tend to act in such a manner as to prove the greatest number of people wrong. This is just something to keep in mind if you find yourself thinking along the lines of the following mad lib:
“surely, go any from ”
If it seems that obvious, there’s a good enough chance the opposite will happen that you might want to at least be prepared for the possibility.
(excerpt from latest MBS Commentary)