MBS Day Ahead: Fed Buying UMBS 2.0 Coupons This Week

Posted To: MBS Commentary

Bonds lost ground last week, overall, with 10yr yields rising the better part of 10bps. MBS lost ground as well, but not UMBS 2.0 coupons. These are the up-and-comers. Now this week, the Fed has added them to their list for daily purchase operations. What will this mean for bonds and rates? First off, this news hit on Friday afternoon, thus giving markets a chance to trade it last week. In fact, there doesn't appear to be any remaining adjustment in that regard as 2.0s are starting the day on equal footing with 2.5s in terms of day-over-day change. In a broader sense, the Fed's addition of 2.0s is mostly a reflection of what the MBS market needs to sell and where it needs help with liquidity. In other words, the Fed isn't saying to itself "we should buy 2.0s in order to push…(read more)