MBS Day Ahead: Even if Bonds Can Continue Improving, How Much Will MBS Care?

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Posted To: MBS Commentary

In the day just passed, the bond market managed to improve at a fairly decent clip, but the gains were much easier to come by for Treasuries vs MBS. Part of that was a factor of the time of day that the rally took place (MBS are typically less likely to keep pace with bigger afternoon moves in the bond market) and the other part was the simple rule of MBS tending to underperform when bond volatility is elevated. It may not seem that volatility is elevated at the moment compared to some of the past 2 months, but that's only because bonds have been rallying recently. Rallies still count as "movement" when it comes to volatility. Simply put, MBS are best able to tighten (aka outperform vs Treasuries) when bonds stop moving around so much and instead hold in sideways, narrow ranges…(read more)

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