Bear with me while I'm forced to crank up the power on my analytical microscope in order to find anything interesting to say about one of the least volatile bond market trends we've ever seen.  None of what we're about to discuss would make the cut in terms of relevance at almost any other time in bond market history.  That said, it's still potentially interesting or even reassuring for those of you who've noticed MBS seeming to struggle a bit versus Treasuries over the past two weeks.

Specifically, MBS prices generally saw lower lows and lower highs in those 2 weeks whereas Treasury YIELDS did the same thing (meaning they were IMPROVING modestly while MBS were losing ground).  As of today, however, the curse has been reversed.   Steady gains in MBS have each 3-month chart looking much more similar to one another.

It may come as even better consolation that the recent underperformance in MBS is entirely explainable.  You know that adverse market fee business?  You know how it has motivated additional lock demand?  Add that together with rates that are still low enough to keep lender pipelines full and there's quite simply been a surge in MBS supply in recent weeks.  At the same time, delays and downgrades of the next fiscal stimulus bill mean less issuance pressure on Treasuries (because Treasuries help pay for stimulus, and more Treasuries = higher supply, lower prices, higher yields, all other things being equal).

You might notice the trends in the charts above are converging (i.e. forming a 'pennant' or triangle).  Knowing what we know about lines and math and time and space, if this trend continues, those lines will converge and bonds will be forced to make a choice.  And so you may be wondering if that breakout will mean anything.  After all, we talk about these "triangle breakouts" quite often over the years as being slightly significant--that is, they imply better momentum in the direction of the breakout. 

In the current case, however, I won't be reading anything into the impending breakout--especially if it takes another week or two to happen.  The factors contributing to low/sideways rates can't be changed in a week or two.  The narrower range boundaries could certainly be expanded a bit, but the general sideways grind requires much more time and information before it will reconsider its stance.