MBS RECAP: Drastically Outperforming Treasuries

By: Matthew Graham

If I didn't know any better, I'd say it looked like MBS were simply "tired of moving" in relative proportion to Treasuries as the latter undergo some volatility around their all-time lows.  If I did know any better, I'd guess that Treasuries were bracing for the impact of a "supply" week.

There is the obvious supply in the form of the Treasury auctions occurring over the first three days of the week, and the less obvious supply in the form of other debt being brought to market.  It's always good to keep in mind the fact that Treasuries are the baseline (or "index" as in the index on an ARM) for other types of debt.  Corporate debt is most notable among these and when rates look to be bottoming out--even if only temporarily--corporations and other issuers of debt take it as a cue to ramp up issuance.  The fairly simply thinking here is that issuing debt = borrowing, and everyone would prefer to borrow at the lowest possible rate.  

The trickier part is that we don't know exactly how much corporate debt (or "other") will be issued this week and estimates are all over the place.  One thing's for sure though: Treasuries get hit much harder by corporate-debt-related volatility than MBS.  Today's vastly different performances (MBS lost 4 ticks and held flat all day as opposed to 10yr yields starting around 1.40 and rising to 1.43) could be as simple as that.  Either way, we'll now be looking to 1.44% for an indication of support.  If it breaks, selling momentum could have some more follow-through behind it.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
104-03 : -0-04
Treasuries
10 YR
1.4300 : +0.0650
Pricing as of 7/11/16 5:41PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
12:45PM  :  ALERT ISSUED: Treasury Weakness Could Be an Issue Soon
11:04AM  :  Treasuries at Weakest Levels; MBS Outperforming

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Dan Shapiro  :  "Thanks Justin... exactly why this chat is super valuable"
Justin Harward  :  "DS - I was offered a similar opportunity last year and I turned it down after talking with a LO who left the bank I work for to be an in house agent. It lasted a year for him before he came back. As a seasoned LO, I think ther'es better opportunies"
Brian Kroskey  :  "I agree Hugh - reads pretty clearly that Fannie Mae doesn't care about it even if it's been disclosed. Lender Overlays could be different."
Hugh W. Page  :  "Make note of the very last sentence...."
Hugh W. Page  :  "Even if you know about it. Per Fannie (and Ira): " Fannie Mae does not require lenders to review or document income from secondary sources when that income is not needed to qualify. Business-related debt for which the borrower or co-borrower is personally obligated would likely be on their credit report and therefore already included in the debt-to income ratio. As a practical consideration, borrowers with a primary source of salaried employment that is sufficient to cover the obligation have more flexibility and could discontinue a secondary self-employment activity should it prove unprofitable. Consequently, it is our view that if salaried employment is sufficient to qualify the borrower, no further inquiry regarding any secondary self-employment income is required. ""