Sorry we were offline everyone...we had a server issue at MND headquarters. All better now!
Since we posted the 10am MBS ALERT.... stock traders have taken some profits as market participants are beginning to question the extent to which they have rallied indices over the past three months. The yield curve has flattened in the process....albeit in a light volume/low liquidity trading environment which is creating somewhat erratic price movements. Unfortunately, although we are seeing slight positive price momentum in the 10yr TSY...there hasn't been any indication that the bearish bias of the fixed income market has dissipated....this is really just short term trading tactics. Look for yield curve investors to continue to sell into strength and buy on percieved weakness (3.70% 10 yr note)
FYI: the steepness of the yield curve, as measured by 2s vs. 10s, hit record high 277bps today. Since reaching those levels the spread has tightened back to 272bps
While TSY traders meddle in a volatile range...mortgage market participants continue to avoid any coupons exhibiting a high degree of extension risk...this means "rate sheet influential" coupons are still off limits. Nonetheless, the rally in TSYs over the past few hours has helped MBS prices move higher as the market keeps yield spreads in the "neutral range" (READ MORE ABOUT RICH, NEUTRAL, CHEAP).
Regardless of the reasons behind better MBS bids....the price improvements have warranted some reprices for the better (a few reported)...
Here is a chart showing the improvement in MBS bids...beware...as TSYs prices lose momentum MBS bids will too fall. The FN 4.5 at par will bring about selling....
Again...the midday recovery in MBS prices is not a sign of improved liquidity in the MBS market (the rate sheet influential portion at least). There are several other technical factors driving market flows at the moment.....most of which have to do with implementing new hedges (delta/vega/gamma) and repositioning portfolios.
REMEMBER: The steepness of the yield cuve and the sentiments of stock traders are driving MBS price behavior at the moment.
Plain and Simple: the fixed income market is bearish. We need major headline news to force equity investors back into risk averse assets like TSYs. Until then...market participants will likely avoid investing in any MBS coupons that leave their portfolio susceptible to the dreaded underperforming rating....
You think the Fed is plotting an announcement?
Convexity flows dominating MBS trading still...
MBS Market Alerts
