MBS RECAP: New Record Levels For MBS And Treasuries


Remember when 10yr yields hit 2.40-ish just over two months ago? Then remember when there was some uncertainty as to whether or not the 2.10-1.90 range was a thing of the past just before 10’s broke from over 2.2 to under 2.1 in less than an hour? Pain Trade…

Remember when markets tentatively defended a 1.90% floor in 10yr yields in late April/early May, then retreated to defending the 1.80% floor as a “selling opportunity,” only to have a bounce higher from 1.80% look like a good call for about 1 session before falling below 1.80% and never really making it back above, thus gently shattering the conceptions of a broader long-standing 1.80-2.10% range? Pain Trade…

Most recently, do you remember how 1.674 was the previous record low (not counting economic prehistory in the 50’s, yes, we know) from 9/26/11 and that “surely,” if 10’s somehow magically approached 1.674 that it would be another great selling opportunity? And remember how we’ve seen 10yr yields give a half-hearted attempt at a bounce at 1.674 heading into 9am this morning an how we’ve since ratcheted lower, eventually grinding our way to a new low of 1.627 and current yields in the 1.63’s? PAIN TRADE!

Maybe the reason that Treasuries keep acting to prove as many people wrong as possible is that folks are still thinking of them as Treasuries as opposed to how they actually end up trading: as “Diet Bunds.” In other words, UST’s are all about the spillover effect from European Benchmark debt. In that context, things aren’t so painful. The real pain is in watching production MBS with little incentive to move higher from either the primary or secondary markets continue to grind into the ceiling near their all-time highs. For all the gains seen in Treasuries, MBS STILL aren’t back to their mid-May highs… THAT’S painful (not the sort of pain we’d really complain about considering we’re looking at all-time low rates, but still!). There are some charts showing how the two stack up in the MBS MID-DAY, if you missed it:

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