As originators scramble with last minute closings(not so much with new TIL) and loan shippers prepare files for purchase, there has been an end of month hustle and bustle about the MBS market this morning. Servicers are buying "down in coupon" (buying convexity) while the Federal Reserve eats up minimal originator offerings (less than $1bn).
Quantitatively "rate sheet influential" MBS coupons are doing a decent job of keeping up with benchmark big brothers. MBS/TSY yield spreads are slightly tighter in current coupon MBS (we have CC at 4.46%). Fast money accounts who have previously ignored rates rallies as a reason to move "down in coupon" seem to be focused more on the middle of the coupon stack than the fuller side today. This is illustrated by wider yield spreads in fatter coupons (6.0s). As we discussed earlier this week...we believe this is a function of the Obama Aminstration putting more pressure on loan serivicers to "get busy" with loan modification programs. So...the day traders who have been free from "prepay risk" anxiety appear to be having second thoughts on their willingness to test the program's powers.
FN 4.5 prices have continued to follow yesterday's trend channel higher. Currently the FN 4.5 is trading at the highs of the day at 100-12....
Rate sheets are noticeable improved this morning! YAY for the flattener trade!
Just wanted to give quick update. Will give more indepth commentary on underlying market activities in MBS LUNCH.
2s vs. 5s: 143bps
2s vs. 10s: 243bps
5s vs. 10s: 99bps
PS...I gave hints regarding activity in underlying markets in comments of MBS OPEN
MBS Market Alerts
