MBS AFTERNOON: Losses Unable To Correct After Fed

From The MBS Ninja:

With no room left to tighten, secondary mortgage spreads are thoroughly reliant upon treasury moves and dips as today"s actions will attest to. In the absence of any new revelations concerning relative value within the sector (of MBS, the market will day trade the sessions away and look to add bonds on pullbacks (if any) and sell into tightening (strength-ample amounts). That is what the forces "at play" (or powers that be, if you prefer) are brewing up within rate-determining MBS land. The lower stack (current and production coupons) cant go any tighter on spread to treasuries and swaps and in fact, are due to soften and start to head wider as the Fed recedes from the market and the accounts left behind (normal capitalistic ones) desire better spreads for their risk based capital. That basic premise will survive in tact until the next market "tape-bomb" detonates to force a different and more dynamic one from which we've settled into (or grown accustomed to, if you again have a literary preference).

I think the Ninja mentioned something about "can't go any tighter."  Ergo, as treasuries go, so must go MBS--at least if the "going" gets rough.  Think of it like this:  if Joe is pushing Jim up a mountain at the point of a sword, Jim can always go up the mountain faster than Joe, but (let's just assume he doesn't want to die...) he can't go up the mountain any SLOWER once he's at the tip of that sword again.  Joe = Treasuries.  Jim = MBS.  Sword = MBS/Tsy Spread.  MBS have been doing a good job fighting off moving higher in the face of rising treasuries, but spreads are so tight now, that if treasuries move higher, so must MBS.

Thus when tsy's do this:

MBS do this:

The moral of the afternoon story is that most of the weakness was on the books before FOMC hit, but whereas it might  CORRECTED from that point, it did not.  And here we are...  Lower...  Waiting for guidance...