August 29th, 2008 9:47 am | by John Jansen |

Mortgage spreads are wider to  swaps by about 6 ticks this morning. I believe that the widening is a result of some profit taking following several days of gains for mortgages and there is nothing macro-thematic about the move. It is also very quiet and very thin and one large seller or buyer can and will move the market.

Swap spreads in the 5 year sector are tighter by 1/2 a basis point and 1o year spreads are tighter by a basis point.

Swap spreads in the 2 year sector,however are wider by 1 1/2 basis points. That movement is repo related. There was a $14 billion fail to deliver in the 2 year note yesterday and the issue trades very special in repo. In my opinion the tightness of the 2 year note derives from quarter end for several large investment banks as well as from the inordinate buying of the sector recently by foreign institutions.

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  1. 2 Responses to “Spreads”

  2. By y81 on Aug 29, 2008 | Reply

    How much is a tick in mortgage spreads?

    Also, can you give more detail on that failure to deliver?

  3. By John Jansen on Aug 29, 2008 | Reply

    My MBS salesman friend tells me that at the current time 1.5 ticks equals a basis point

    Or reciprically $466 perbasis point. That is using the current coupon.

    Regarding the fail, I just think that there is tons of money piling into the fron end of the treasury market from investors shunning mortgages and agencies.I linked to something last evening from the FT which noted that the Bank Of China had reduced its agency holdings by nearly $5billion in a short period of time.(Since June I think) One trader noted that the Fed mentioned in its regular Thursday briefing that they had lent to the dealer community via a regular program all of the 2 year note which they own.

    The issue is 20 cents bid in repo this morning.

    One trader with whom I converse regularly and who is a frequent anonymous source here mentioned that there is a foreign entity waving in January and February Tbills right now at yields just below the funds rate. They anticipate a period of very very difficult funding as year end approaches and think that there will be significant profit in short bills.

    Hope that is helpful.

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