MBS and Swaps and VOL

June 30th, 2009 2:37 pm | by John Jansen |

Swap spreads are wider across the curve today. They have leaked a basis point wider since I posted on the topic earlier in the day. The conventional wisdom attributes the widening to the Oracle corporate deal which was expected to be in the $ 3billion to $ 4 billion vicinity. Several participants report that the issuer rate locked the deal and that transaction pressured spreads wider throughout the day.

The salient point to make here is that this is not a convexity trade. In that regard sources report that mortgage servicers are currently close to balanced and that a 15 basis point to 20 basis point move would draw a balanced response in that receiving on a move to lower rates would equal the paying that would ensue if rates moved higher.

One salesman offered his opinion that if there was a move back towards 4 percent 10 year notes that trade would deliver far more pain than a move to a 3 percent 10 year note.

The two year swap spread widened 3 basis points to 41 1/4. The three year spread widened 4 basis points to 52 1/4.  Five year spreads widened 3 basis points to 41 1/2. Seven year spreads leaked 3 1/4 basis points tighter to 22. Ten year spreads widened 2 1/4 basis points to 24 and thirty year spreads normalized 2 1/4 basis points to NEGATIVE 14 1/4.

Mortgages are about 2 ticks better than swaps.

The three month ATM 10 year straddle is 677 basis points.

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