Bad Day For The 10yr But Not For MBS
The spread between 2 and 10yr yields has widened more than 27bps in 2 days, easily un-inverting the curve and bringing it back up to the 20bp neighborhood. Rarely do we see such an obvious schism, but this one makes sense and offers insight at the same time. The insight is that 2yr yields have priced in Fed rate hikes to a large–if not full–extent. It makes sense that the long end would suffer amid yesterday’s Fed Minutes revelation (i.e. huge balance sheet reduction numbers more or less already agreed upon). The surprise is the MBS response. We could easily explain away additional MBS-specific weakness today, but if anything, MBS are outperforming. Today’s video discusses more about what that might mean.
Econ Data / Events
Fed MBS Buying 10am, 11:30am, 1pm
Jobless Claims 166 vs 200 f’cast, 171 prev
Market Movement Recap
08:50 AM Moderately stronger for most of the overnight session, but sellers are taking control during domestic hours. Weakness most pronounced in longer end. 10yr up almost 4bps at 2.635. UMBS 4.0 coupons are hangin’ tough, up 1 tick (0.03) at 101-02.
01:21 PM Curve continues to steepen (10yr yields up 5bps, 2yr yields down 3bps) and MBS continue to outperform with 4.0 coupons up 5 ticks (.16). No new news.
03:29 PM 10yr continues higher, up 6.4bps at 2.662. MBS continue to outperform, but are now back to ‘unchanged’ in 4.0 coupons. 3.5 coupons are an eighth of a point lower.