MBS RECAP: 1/3/2012

As we’ve discussed many times in the past, MBS generally tend to weaken more slowly than Treasuries when bond markets are generally weakening (conversely, they don’t tend to rally to quite the same extent during bond market rallies). So to see them significantly tighter (MBS yields and Treasury yields moving closer to each other–in this case, TSY yields rising faster than MBS) this morning after 10yr yields opened almost 10bps higher than 12/30’s high 1.8’s is not a major shocker. Since then, MBS have mostly marched to the beat of their own drum in terms of yield, which has held fairly steady whereas 10yr yields rallied down to 1.91 by the time FOMC minutes rolled around.

Following FOMC minutes, 10yr yields are back up to the 1.95’s, but Fannie 3.5 MBS have remained much steadier by comparison, bringing yield spreads back in line with their tightest levels of the morning. Volume hasn’t been especially high in response to the FOMC Minutes, but one might conclude that MBS are willing to outperform because they are widely regarded as the Fed’s leading candidate to be the centerpiece of the next round of QE (IF there is a next round of QE). Nothing about the minutes particularly shot down that ongoing possibility, and thus MBS outperform.

Bottom line, if you have colleagues tuned into 10’s as their preferred mortgage rate indicator, speak soothing words to them and let them know everything is OK. A few lenders have already repriced positively on the day, and the bigger risk comes from pipeline control (as business ramps back after the holiday breaks) as opposed to MBS price-related risk.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/241730.aspx

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