MBS RECAP: Bonds Escape With Minimal Damage after Volatile Morning

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Posted To: MBS Commentary

Surprisingly, the story of the day turned out to be Core CPI coming in at +0.2558 vs a forecast of +0.2. This was apparently enough to send bond markets reeling (relatively). The fact that the shorter maturities got hit the hardest, suggests that it was a pure rate-hike-timing trade. Reason being: the Fed Funds rate is literally an overnight rate target, and overnight rates are as short as they come. So a change in the overnight rate outlook radiates out from there in terms of duration. As such, it's no surprise to see 2-5yr Treasuries end the day up more than 4bps while 30yr Treasuries actually improved. 10yr yields were somewhere in between, losing only 1.9bps. The average mortgage has a bit of a shorter duration than 10yrs, and consequently underperformed, but only slightly. After the...(read more)

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Source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/473844.aspx

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