Fannie 3.5s stayed inside a 4 tick (.125) range today despite a round of upbeat economic data at 10am and a clear trend toward higher yields in Treasuries. This isn’t an uncommon divergence when Treasury yields have bounced at recent lows, as they did on Thursday and Friday.
Part of the reason is the general phenomenon of MBS simply moving less in either direction. That’s compounded in this case by Treasuries’ role as a hedging vehicle for corporate bond issuance (large companies who plan to issue bonds frequently sell and buy Treasuries to protect against market movements while their deals are being finalized).
Whatever the combination of factors, the result is a 10yr yield that moved more than 3bps higher over the course of the day vs Fannie 3.5 prices that held relatively steady. Both began the day in significantly weaker territory as financial markets lowered their guard from the 3-day weekend.