It's an interesting morning in the bond market--at least for those of us who are interesting both in general rate momentum and nitty gritty MBS movement.  The general momentum is fairly boring.  10yr yields, for instance, are simply trending higher in linear fashion after hitting surprisingly low yields on Wednesday afternoon.  If there seems to be any extra urgency behind that sell-off, it's most easily explained by the obvious urgency behind the European sell-off. 

Meanwhile, MBS are apparently underperforming, but looks can be deceiving.  Let's start by asking a question to the loan officers.  On average, how long ago did your last refi client obtain the loan you're about to pay off?  Chances are this number is nowhere close to 10 years (and at most times since covid, nowhere close to 5 years).  But over time, an average emerges of somewhere between 5 and 10 years.  

Obviously the recent average would be well under 5 years, so we're going to see more correlation between 5yr Treasuries and MBS than normal.  That's not a big deal when the yield curve (difference between longer and shorter-dated Treasuries) isn't changing too quickly.  At the moment, however, the yield curve has been volatile.  5yr Treasuries are generally doing terrible versus 10yr Treasuries.  With MBS having a duration that more closely resembles 5yr Treasuries, we shouldn't be surprised to see underperformance vs the 10yr.  Even then, it's pretty minimal in context.  Not only that, but MBS are definitely outperforming versus the 5yr.

The chart shows both points of comparison.  Each line is the spread between the MBS current coupon yield (theoretical yield of an MBS coupon that's always priced at 100-00).  It's not important to understand what "current coupon" means, just that it's a way to standardize the notion of "yield" for MBS so we can more easily compare it to Treasury yields.