Posted To: MBS Commentary
In the past few weeks–and especially the past few days–we’ve seen a sharp spike in MBS yields relative to Treasury yields. And yes, the Treasury yield spike has been plenty sharp in and of itself. That means MBS are taking a huge beating by comparison. Why? Simply put, this is the natural order of things when rates shift gears. Homeowners with loans that fill the lowest MBS coupons are suddenly at risk of never wanting to refi. That makes 1.5 and 2.0 coupons skyrocket in terms of “duration” (think of this like the year count on a Treasury note/bond). Not only are longer-duration bonds underperforming recently, but the pain is even greater for MBS. Unlike Treasuries, which will always last for as long as they did when you bought ’em, MBS durations change with the market….(read more)
