The curve flattened 7 basis points today to 156 basis points as the 2-year was mostly unchanged on the day to yield .74% and the 10-year rallied about three-quarters of a point in price to yield 2.3%.
Mortgages Widen
New-issue 30-year Agency MBS widened out to begin the week at 107 basis points over comparable Treasuries from just 78 basis points late last week. This is likely a correction to the market overreacting with regards to the impact of the Fed buying MBS. The impact is likely to be great, but it will take a few weeks in order for the market to gain more insight into what the exactly the Fed is looking to buy.
The New York Fed reported $10.2 billion of Agency MBS purchases from January 5th through the 7th, while concentrating on 4.5% and 5% coupon 30 year pass-throughs, as we expected. This is perhaps a slower start compared to what the market expected, causing the considerable widening today. We will continue to get a report on their purchases every Thursday for as long as the program is in effect.
Have a great evening.
Cliff J. Reynolds Jr.
Junior Analyst
Tuesday, January 13, 2009
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