MBS, Vol and Swaps

April 30th, 2009 1:40 pm | by John Jansen |

Swap spreads are tighter across the curve today. Two year spreads are 1/4 basis point narrower at 55 3/4. Three year spreads are 2 basis points tighter at 55 3/4 also. Five year spreads are 1/4 basis point narrower at 53 3/4. Ten year spreads are 1 basis point tighter at 9 3/4. Thirty year spreads are 1 1/4 basis points tighter at 42 3/4.

One salesman noted receiving from mortgage servicers. He thought that they were actually adding to previously established positions which are now underwater. There has also been receiving by traders who think that into next week’s round of Treasury paper there will be a supply concession and a tightening of spreads.

Volatility picked up across the vol surface. Higher rates bring in vol buyers. Right now there seems to be a little more interest in structures with expirations of one year and less but longer dated structures have ticked up.too.

Mortgages are about 4 ticks wider to swaps. Origination selling has clogged the market and the Federal Reserve had not bought enough to hold the market steady.

One trader opined that if the Treasury market backed up another 10 basis points or so that would engender selling. He thought that would be a cathartic event of sorts as there would be no supply left after that.

In his opinion if the Federal Reserve stepped up its purchases at that point it would have major impact and would ratchet spreads significantly tighter.

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