MBS AFTERNOON: Choppy Price Action Leads to Reprices
Interesting day we've had....
The FN 4.0 is currently -0-05 at 99-18 yielding 4.050%. The FN 4.5 is currently -0-02 at 101-27 yielding 4.275%. The secondary market current coupon is 4.084%
The FN 4.5 has bounced around a 12 tick range... READ WHY IN MBS MORNING. Unforunately several lenders repriced for the worse when prices hit the bottom of the range.
CURRENT COUPON YIELD SPREADS TIGHTENED A LITTLE MORE TODAY...
CC vs. 5yr TSY: +186bps
CC vs. 10yr TSY: +83bps
CC vs. 10yr SWAP: +67bps
To put that in perspective for you...on October 1 the Current Coupon was +92/10yr TSY, +191/5yr TSY, +79/10yr SWAP.
Plain and Simple: YIELD SPREADS ARE TIGHTER....Rate sheet influential MBS coupons have been outperforming their benchmark big brothers (MBS yields have fallen more than TSY yields. Thank you Fed!)
I think we figured out why there was such a commotion after the auction...but I am too chicken to go out on a limb before bouncing our theory off a few of our mentors. If we are onto something we will let you know...if we are exploring the wrong reasons, we'll laugh it off and listen to what more observant market watchers have to say about it. Either way...the post-auction chaos pushed the long end of the curve almost 12bps higher than the intraday yield lows.
OK HERE IS A HINT: Dealers took 57% of the issuance and the auction stopped out 3bps higher than the 1pm "When Issued" bid side yield (should take midpoint). Relative to recent auctions...that's a lot for dealers to be awarded.
Sorry about the lack of confidence...just being honest. Learn something new everyday and let your brain appreciate with time....