Positive reprices continue to be possible as MBS are pulled nominally higher by Treasury tradeflows. Here’s what that confusing sentence means:
There was heavy betting through the end of November that the longer maturity Treasuries would suffer relative to the shorter duration stuff (because Markets saw Fed staying strong on front end guidance–i.e. “low Fed Funds Rate for a long time.”
That sentiment began to wane heading into December, but made a small resurgence heading into FOMC Wednesday. That didn’t turn out well and now there is a massive unwinding of these bets following FOMC. 30yr bonds are the biggest beneficiary, but 10’s and MBS are catching a boost as well. MBS aren’t trading too much at all and most of the improvement is coming from quotes being adjusted to keep pace with Treasury benchmarks.
Here’s a chart of 5yr Treasury yields vs 30’s to show the dynamic. The higher the line, the worse traders think 30’s would do vs 5’s (i.e. betting on 30’s moving higher vs 5’s).
Fannie 4.0s are now +10 on the day at 103-10.