For two days in a row, the Fed hasn’t had a Fannie/Freddie 30yr buying operation, and that’s been painfully evident in the underperformance of MBS compared to Treasuries. In addition, the nature of the rally is more beneficial for Treasuries in the first place.
What makes a rally “more beneficial for Treasuries?” Almost anything really. MBS don’t really care for movement. They’re at their best when Treasuries are holding still or at least moving mildly and predictably. So right off the bat, the more volatile movements seen so far in December haven’t been MBS-friendly.
Beyond that, when a rally is driven by Europe, the most direct spillover to domestic markets is in Treasuries. MBS are therefore somewhat removed. Treasuries were also in line ahead of MBS to benefit from the strong 10yr Auction this afternoon. It took markets a few minutes to reveal their bias following that auction, but once it happened, bonds rallied well for the rest of the afternoon, ultimately resulting in numerous well-earned reprices.