• MBS 4.5's up 1 tick at 101-04
• 10yr notes down 8 ticks, up 3bps to 3.64
• Q: Why are MBS higher and Tsy's lower?  (see red circles in chart showing closing levels vs. current)
  
• A: Fannie Buyout disambiguation carries over, supportive week, reinvestments, money managers active in lower coupons
  
• Think of it as an MBS exclusive FTQ

As sad as it is for me, I have to give credit to the MBS Ninja for framing today's outperformance in the context of "MBS FTQ."  For those who need the refresher, FTQ=Flight To Quality, generally refers to reallocation of investments from a riskier position to a less risky position, i.e. from stocks to bonds or in the case of MBS today from higher coupons to lower coupons.  It's not uncommon to ascribe an FTQ to more than factor and MBS is no exception today.

I had been tossing around a few of those factors in my head, including paydown reinvestments (monthly P&I cashflows come in and can be reinvested with MBS), an extension of the shake-up caused by fannie releasing details on their 120+ day buyout plans, light supply, new treasury auctions announced tomorrow, and even a relative "bargain buying opportunity" created by widening  yesterday (i.e. mbs and tsy roles were reversed and tsy's outperformed, making MBS more attractive today).

I love it when we get these clearly divergent days in MBS vs. tsy's as it's something that not only reinforces one of the key reasons to stay in touch with the MBS market in the first place, but it's also a good talking point to take to clients and business partners alike.  So I usually ring the Ninja on such occasions to cross-check my assumptions and to be disabused of anything I might have missed.  Turns out I didn't miss much, but the concept of "MBS-specific FTQ" was probably the best way to think about today's disconnect, and that's all-Ninja.

Bottom line, even though premium coupons rallied yesterday, a massive amount of money, in general, continues to flow out of that part of the stack, ESPECIALLY in OFF-THE-RUNs (delivery months that are further out than the most impending TBA vintage).  The safer place for that money, it seems, is the lower end of the MBS stack, 4.0's and 4.5's--generally perceived as less credit impaired, younger and consequently more stringently underwritten, and of course far less susceptible to 120+ day delinquency buyouts.