MBS RECAP: 9/29/2011

Various statistics from the last 5 7yr auctions (BTC = Bid-to-Cover ratio and “vs WI” is the difference between the 1pm when-issued yield and the auction’s stopping high yield in terms of bps, so 0.7 bps = 0.007% ):

..Date……… BTC……Yield …..Indirects… vs WI
8/25/11 ….. 2.76……1.580…..51.7%…….0.7 higher
7/28/11 ….. 2.63……2.280…..39.6%…….1.9 higher
6/29/11 ….. 2.62……2.430…..32.2%…….3.5 higher
5/26/11 ….. 3.24……2.429…..47.6%…….0.7 lower
4/28/11 ….. 2.63……2.712…..39.1%…….3.70 higher

Average BTC = 2.77
Average Indirects = 42.04%
Average Tail = +1.82 bps (high yield is this much higher than WI on average)

As you can see based on 4 out of the last 5 auctions coming in at higher than expected yields, 7yr issues can be challenging of late. But on the past occasions where 5 and 2 yr auctions have come in better than expected earlier in the week, so too have 7’s.

There’s also the unknown impact of potential Fed-Buying considering this will be the first auction since the FOMC statement that is eligible for Operation Twist buying. 7’s haven’t built in much of a concession today so if we don’t see one heading into the auction, even an on-the-screws result would constitute a good auction.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/230901.aspx

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