Bonds were unchanged to slightly stronger for most of the overnight session, but are now losing ground modestly. In the context of the previous 2 trading days, 10yr yields are still close to the middle of their range. MBS, on the other hand, are trending progressively lower.
The MBS underperformance can also be quantified in terms of MBS YIELD compared to Treasury yields. Even when we use the more favorable comparison with the 5/10yr Treasury blend, MBS are still at their weakest relative levels months (higher green bars = more MBS underperformance vs Treasuries).
Perspective is important though. If we zoom out a bit, we can see MBS are just giving back some of the gains that came courtesy of the pandemic-era bond market (lower = better for the green bars).
Last but not least, when we bring the financial crisis into the conversation, pretty much everything else looks inconsequential by comparison.
Moving on to “liquidity problems…”
3.0 UMBS coupons are now the best fit for the widest variety of rates that are actually being originated this week. Unfortunately, they’re still not nearly as liquid as 2.5 coupons. The illiquidity is especially noticeable before 9:30am.
This is more of an un-fun fact rather than some important analytical concept. In other words, it’s just something to keep in mind if you’re watching intraday price movement–especially before 9:30am.