MBS Day Ahead: Another Way to Look at The Range; Why Did MBS Tank?

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Posted To: MBS Commentary

First off, let's cover the huge drop in MBS prices overnight. Fannie 3.0s, for instance, closed at 103-29 and then began today at 103-23–all this despite a decent overnight rally in Treasuries. Not to worry… this is due to "the roll." The "MBS Prices" you see on the screen at any given moment are dictated by the MBS coupon that's closest to retirement (or 'settlement,' if you prefer). August coupons are retiring today, and their trading cut-off was yesterday. That leaves September coupons to carry the banner of "MBS Prices," and September coupons have always been at lower prices than August. In fact, every trailing month is always a lower price than the previous month. This has to do with the fact that the trailing month makes investors wait…(read more)

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