More often than not during the past few months, a quick glance at the MBS Live dashboard reveals that MBS are making better gains than Treasuries.  Is this the way it always is?  Is something new and different happening?  Why hasn't it been as noticeable in the past?

First off, this is definitely not the way it always is.  Here's a medium term look at the gap between the computed MBS yield (not an objective number, as it relies on an equation that has to guess how rates will move in the future and how borrowers will respond in terms of refi demand) and 10yr Treasury yields.

Clearly, the relative performance ebbs and flows, and we're just more able to notice this instance of outperformance for a few reasons. First off, the past month has been some of the strongest outperformance in recent memory (a fact that has most to do with the weakness that preceded it).  But the shape of Treasury trading has an influence on what we perceive as well.  For example in March 2019, MBS were outperforming at a similar pace, but Treasury yields were also dropping at the time.  This made it harder to notice any discrepancies with a quick glance at a table of prices on the dashboard.

Perhaps the greatest aid to "noticing" the outperformance is the relatively flat trajectory in Treasuries lately.  The super narrow trading range has resulted in many days where we've seen slight losses in Treasuries despite slightly gains in MBS.  That "red vs green" visual cue makes it much more obvious.

So will MBS outperform today?  Probably not!  The key ingredient in the outperformance has been a slow and steady trend of weakness in Treasuries.  If that trend isn't easy enough to see in the chart above, here's an actual linear regression in 10yr yields beginning in September 2019.

In other words, the strongest indicator for MBS outperformance right now is a weak day in Treasuries.  So far, Treasuries are slightly stronger, thus limiting potential for MBS to outperform.

In terms of today's specific events, it's shaping up to be another quiet one without any significant data or events on the table (CPI was out earlier, but wasn't expected to have a big impact due to market's current indifferent attitude on inflation).