MBS AFTERNOON: Status Quo Heading Into 3pm Close
Bouncing back and forth between 101-30 and 101-27. Yawn....
WAIT WAIT WAIT...lets see if I can make your brain explode one more time before the weekend!
June Barclays MBS index extensions have been released. The MBS index extended 0.17 years in June, therefore the index will open July with a duration in the neighborhood of 2.95 years. I will refrain from the explanation of this one because its Friday and the last thing you want to discuss is settlement dates, day counts, paydowns, and face values....however I will say this, MBS portfolio managers who manage their returns against the Barclays MBS index must measure the duration of their portfolio against the duration of the index. So at the end of the month when extensions are published, portfolio managers will focus up on the previously discussed statistics to help them decide how to/whether or not to rebalance their portfolio to match up its duration against the duration of the index.
(Its really about measuring the performance of their portfolio against the performance of the benchmark)
Plain and Simple: "Rate sheet influential" MBS coupons will get a little extra demand side support from portfolio managers because of the index extension...its complex but you should at least be aware of it.
2s vs. 10s: 240bps