MBS Weekly Market Commentary Week Ending 03/13/2020

Treasury yields ended another volatile week mixed, with yields on intermediate and long maturities rising while shorter maturity yields declined.  After bottoming out at 0.54% on Tuesday, the 10-year note eventually ended the week yielding 0.96%, although the latter part of the week saw intense intra-day volatility.  The rally in the short end of the curve, which pushed the 3mo/10yr spread wider by 40 basis points, likely reflected expectations of a sharp cut in the Fed Funds target rate by the Fed at the 3/18 meeting; the Fed ultimately jumped the gun with a rare (if not unprecedented) Sunday announcement of a return to a 0-25 basis point target.  The Fed also announced other measures, including a tepid return of a Treasury purchase program on Thursday and a larger program with the Sunday announcement.  


*The MBS Weekly Market Profile Report corresponds to the commentary below.*

The accompanying chart shows that the 40-day standard deviation of the 10-year note has roughly doubled over the past few weeks; while the level of volatility is not unprecedented the speed at which volatility has spiked is eye-catching.  Click to enlarge (The measure, based on closing yields, also doesn’t take into account the 2-4 point intra-day moves in prices experienced last week.)

MBS endured a very rough week, with virtually all coupons closing lower.  Even with a strong session on Friday, liquid MBS coupons trailed their Treasury hedge ratios by between 5/8 of a point (UM30 3s) and roughly 1 5/8 points (GNII 2.5s).  The Fannie current coupon spread over interpolated Treasuries gapped wider, ending the week at +153 basis points, its widest level since mid-2011.  The Ginnie II current coupon spread also gapped wider, and ended Friday almost 70 basis points wider since mid-February.

Coupon swaps mostly expanded, with the UM30 3/2.5 swap (which ended the prior week at 16/32s, a highly unusual 1x multiple) moving out by ¾ of a point.  UM30 2.5s now dominate trading activity, comprising in excess of 40% of all 30-year conventional activity; while there was some trading in Fannie 2s activity levels are small (less than $1 billion daily) and both pricing and liquidity remains erratic.  Bid/ask spreads across the sector were generally wider, and in some relatively illiquid coupons screen prices were unreliable.

The Fed’s Sunday surprise included a program to purchase at least $200 billion in MBS over the next few months, and will also continue to reinvest principal runoff in MBS.  (With the refi index more than doubling since the beginning of February, they should have a lot to reinvest.)  Aside from pushing MBS sharply tighter this morning (Monday 3/16), the Fed’s actions also put additional pressure on dollar rolls; traders are anticipating that the bulk of their purchases will be in the front month, while the deluge in supply is concentrated in May and later settlements.  Most notably, the Ginnie II 2.5 roll has moved out to an 11 ¾ tick offer, while even the UM30 2.5 roll is currently almost 4/32s special.

Good luck…and please stay healthy.



About the Author: Bill Berliner

As Director of Analytics, Bill Berliner is tasked with developing new products and services, enhancing existing solutions, and helping to expand MCT’s footprint as the preeminent industry-leader in secondary marketing capabilities for lenders.

Mr. Berliner boasts more than 30 years of experience in a variety of areas within secondary marketing. He is a seasoned financial professional with extensive knowledge working with fixed income trading and structuring, research and analysis, risk management, and esoteric asset valuation.

Mr. Berliner has also written extensively on mortgages, MBS, and the capital markets. He is the co-author, with Frank Fabozzi and Anand Bhattacharya, of Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques, which was named one of the top ten finance texts in 2007 by RiskBooks. He wrote and edited chapters for The Handbook of Mortgage-Backed Securities, The Handbook of Fixed-Income Securities, Securities Finance, and The Encyclopedia of Financial Models. In addition, Mr. Berliner co-authored papers published in The Journal of Structured Finance and American Securitization. He also wrote the monthly “In My View” column for Asset Securitization Report from 2008-2012.

10-Year Treasury Yield Curve

Compare this chart with the mortgage rates chart to see how the 10-year treasury and mortgage rates are correlated. Read more below to learn how mortgage rates are tied to the 10 year treasury yield. View raw data on U.S. Department of the Treasury website.


Mortgage Rates Today

The current MBS daily rates are shown below in this chart for 5/1 Yr ARM, Jumbo 30 Yr, FHA 30 Yr, 15 Yr Fixed, 30 Yr Fixed. Sign up for our MBS Market Commentary to receive daily mortgage news in your inbox.

About the Author

Robbie Chrisman, Head of Content, MCT

Robbie started his mortgage industry career with internships during high school and college at Peoples National Bank in Colorado, and RPM & Bay Equity in the San Francisco Bay Area. After graduating from The University of Texas at Austin with a degree in Finance in 2014, he went to work at SoFi, where he rose to Director, Capital Markets assisting in the creation of SoFi’s residential mortgage division before leaving to work for TMS in Austin, Texas. From there, he went to work for FinTech startup Riivos in San Francisco and now is the Head of Content at Mortgage Capital Trading (MCT) in San Diego.

 Join Newsletter or Follow MCT on Social Media:

Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

Sign up for daily mbs market commentary and review previous commentaries by visiting our commentary category page. Join our email list for further MBS market news, subscribe to receive educational articles, whitepapers, relevant updates, and mortgage market commentary. 

MBS Weekly Market Commentary Week Ending 3/31/23

The market reaction went a little “too far, too fast” in regard to the Fed policy pivot. We witnessed the coupon stack (i.e., the price spread between TBA coupons) decompress in more than a trivial manner in a short period. However, the primary mortgage market has been largely reluctant to follow the Treasury rally, and mortgage rates have ultimately not dropped by the same amount as Treasury yields.

MBS Weekly Market Commentary Week Ending 3/24/23

The FOMC raised its benchmark rate by 25 basis points to a new range of 4.75%-5.00% on Wednesday, a middle ground policy move made in the hope of tampering inflation without further harming the banking system. The raise marks the 9th consecutive rate hike since the Fed began hiking in May of last year and brings the target fed funds rate range to the highest level since September 2007. While the central bank’s monetary policy has been aimed at correcting inflation, it has also revealed hidden weaknesses (e.g., entities whose balance sheets relied on low interest rates).

MBS Weekly Market Commentary Week Ending 3/17/23

Next week will reveal the Fed’s resolve on continuing to beat the drum on their aggressive inflation fight. The word until now has been that the central bank will keep hiking interest rates until inflation is under control.

MBS Weekly Market Commentary Week Ending 3/10/23

Events this week likely will lead to a higher peak interest rate than investors had been expecting just weeks ago. Central bankers appear worried about a cycle in which workers seek higher pay to offset inflation’s bite, and in turn trigger more price increases. In fact, inflation remains high because people have jobs and earn enough income to cover stubbornly expensive housing costs. Robust hiring is good for the economy and workers, but elevated pay growth puts added pressure on the Fed to bring down earnings. 

MBS Weekly Market Commentary Week Ending 2/10/23

The week after the jobs report is generally pretty data-light, and this week was no exception. With a dearth of data, market movement hinged on “Fed speak” and consumer sentiment. We saw some volatility return to bond markets as investors built in expectations for a more hawkish Fed. As a reminder, the Fed raised its benchmark rate last week to a range of 4.5% to 4.75%. Let’s run through what we’ve learned in the wake of that decision and a robust U.S. payrolls report that took some wind out of investors’ sails that had hopes for rate cuts by summer.

MBS Weekly Market Commentary Week Ending 2/3/23

As strong as economists may have thought the job market was, it’s even stronger. In addition to headline non-farm payrolls in January (517,000) beating estimates by around 300,000, employment numbers were revised higher for the past two months. Yes, a tight labor market is anathema to any sort of quick stop to the Federal Reserve’s rate hiking cycle, but the growth rate in average hourly earnings is declining, which will be welcome news to Fed Chair Powell and his colleagues. There exists a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.