MBS and Treasury
September 8th, 2009 10:49 am | by John Jansen |One trader (who I do not have permission to quote directly) notes in an email that MBS have lagged Treasuries during the recent rally from 3.85 ish 10 years down to 3.30 10 years.
According to this veteran, LOAS has widened by 25 basis points to 30 basis points over the period of that Treasury market rally. He notes that loan demand is weak and banks are buyers on dips.
He does not state this but my surmise is that the 50 odd basis point rally in 10 year notes did not provide many opportunities to buy a dip and consequently the underperformance versus Treasuries ensued.
LOAS is the Libor Option Adjusted Spread.It compares the yield of a mortgage to Libor and also adjusts for the optionality embedded in the mortgage.
The Treasury market witnessed some early rate lock selling and then some buying following a larger than expected Gilt purchase in the UK by Bank of England. The market also developed a bid as some traders covered shorts ahead of the Open Market Desk intervention in the free market at 1100AM.
