MBS RECAP: Bond Markets Inch Back Toward Positive Territory After Volatile Morning

The 'after-hours' session (3pm-5pm, following the close of Treasury pit trading) is seeing an ongoing trickle of sideways to slightly stronger prices in MBS.  The Treasury yield curve is flagrantly favoring the shorter maturities--part of a two-day correction to an even bigger move away from shorter maturities that began in earnest last week. 

In plainer terms, this means that yields on 2-5yr Treasuries were rising faster than yields on 10-30yr Treasuries until Friday, and now the opposite has been the case.  In fact, 2-5yr yields fell today while 10yr and 30yr maturities are slightly weaker/higher.  

As part of the their relationship with Treasuries, MBS tend to correlate best to the Treasuries with the most similar durations.  Of course MBS don't have a fixed duration because borrowers can sell or refi any time.  As such, the average life of an MBS pool is always a bit of a mystery, but we can be sure it's nowhere near the extremes of the Treasury yield curve, and thus MBS are splitting the difference at the moment, very close to unchanged here at the end of the day.

In terms of day-over-day rate sheet comparisons, that's too little, too late.  This morning's weakness, combined with the volatility surrounding economic data and Yellen comments leaves us in weaker shape on average.  That said, we haven't even gotten to the week's juiciest non-NFP data.  With April being a new month/quarter, and tomorrow bringing the important ISM Manufacturing data, we'll get a chance to see how much of a connection to economic data we should expect through the rest of the week.