Posted by: cfigueira | March 6, 2010

MBS CLOSE: Stunning Display Of Courage Under Fire

“Little Engine That Could” status certainly has to go to MBS this week. Like the rest of the fixed income market, after a largely positive 2 weeks, MBS came under heavy fire today with the better than expected NFP print. When that happens, bonds of all shapes and sizes head south in a hurry, but to a much greater extent than treasuries, MBS fought back hard. What does that mean? Take a look at how MBS are definitely rallying from 1030am onward and even return to yesterday’s range, whereas treasuries just seem to fizzle sideways, never coming close to even the highest yields from 3/4…. As you can see, MBS appeared to almost be playing the same sort of ball they were for the past two days, but treasuries will certainly be opening their locker to find a one way ticket back to the Farm League. OK, so it’s not quite so bleak… Spreads between the two ebb and flow regularly (unless you look at 2009 through present in which they’ve more or less tightened in a perfectly straight and viciously sloped line of Fed-induced awesomeness), and certainly when/if the Fed bows out, the extent to which spreads will widen back out is a hotly debated but almost universally agreed upon topic. But for 2009, and for now, WE’LL TAKE IT! FN/FR want to buy out 120+ day delinquencies causing reinvestment into 4.5’s? We’ll take it! Barney wants to reiterate his support for some sort of explicit government guarantee (a la Ginnie Mae’s), we’ll take it! Spread products
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