The notion of MBS underperforming Treasuries is front and center today--not because that underperformance is especially large, but mainly because MBS were often in the red while Treasuries were in the green. We have nothing new to add to yesterday's similar discussion of MBS underperformance but have nonetheless attempted to add a few thoughts in today's video. As for nuts and bolts, it was a boring day for bonds with modest gains for the long end of the yield curve (one major reason for MBS underperformance) and an uneventful, sideways grind in the afternoon.
stronger overnight, but giving up some gains in the past half hour. MBS up 1 tick (.03) and 10yr down 2.7bps at 4.218
11:54 AM
Choppy trading in a narrow range. MBS underperforming with 5.5s down 1 tick (.03). 10yr yields are down 3bps at 4.215
03:14 PM
Zero change from the last update and very little volatility between now and then.
Lock / Float Considerations
If rates are to rally further, it requires an ongoing supply of friendly economic data. The bar gets higher as rates get lower. Risk-tolerant floaters can use recently broken floors as new ceilings (aka lock triggers). Defensive clients are focused on risk associated with inbound econ data. Both sides of the spectrum should continue to consider that it takes several months of cohesive econ data to truly confirm a shift that coincides with a more float-friendly environment.
