MBS Spreads Are Not Happy
Abstract
MBS yields a moving target, but there are mathematical models that calculate them. One issue is the inverted yield curve (shorter-term debt is underperforming in general, and mortgages are widely assumed to be much shorter than their typical Treasury benchmarks. The other is volatility (all other things being equal, volatility hurts MBS spreads) The red line (gap between rates and MBS) is volatile but flat. This suggests mortgage lenders hands are fairly well tied. The orange line (between rates and 10yr) is rising and rates are rising.
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