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MBS Day Ahead: Why Are MBS Prices So Much Lower This AM?

Posted To: MBS Commentary

2.5 UMBS coupons last traded at 103.5 (103-16) yesterday. This morning, they are down to 103.31 (103-11), which is roughly a 20bp drop. But the charts on MBS only show them being down 1-2 ticks (.02-.05) depending on when you look. What's up with that? In a word: "the roll." More specifically, the monthly coupon settlement for 30yr fixed UMBS. Up until today, coupons for the month of May were the "front month"–the most current, most immediate, first in line to expire… The front month coupon is where we look to get "MBS prices," but there are multiple delivery months. When May coupons are retired, June coupons take their place. The only catch is that June coupons are trading lower in price than May coupons. If we think about it, this makes a lot of sense…(read more)

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