MBS Day Ahead: What is MBS ‘Outperformance’ And Why Are We Seeing It?
Posted To: MBS CommentaryI’ve been mentioning MBS outperformance and underperformance quite a bit recently, but what do these terms really mean and why do we care? First off, we always care about strength and weakness in mortgage bonds as they are the primary building block in determining mortgage rates (i.e. higher MBS prices = lower rates , all other things being equal). We also care about strength and weakness in Treasuries because mortgage bonds typically correlate amazingly well with Treasuries (so much so that many mistakenly believe 10yr Treasury yields serve as a basis for mortgage rates). The type of volatility seen in March exposed a few eye-opening truths. The first was that mortgage bonds can and do deviate from 10yr yields at times. March offered the most extreme example we’ve seen since the financial…(read more)Forward this article via email: Send a copy of this story to someone you know that may want to read it.