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MBS Day Ahead: Pieces Falling Into Place For Mortgage Market

Posted To: MBS Commentary

As recently as April 21st, the fate of the mortgage market was still highly uncertain and that uncertainty was readily apparent in the ridiculously wide gap between mortgage rates and their normal benchmarks. For instance, the average 30yr fixed rate tends to hang out in a range between 1.6 and 2.0% higher than 10yr Treasury yields. When bond volatility is extreme (especially when Treasury yields are dropping quickly), that gap has been wider, but never MUCH wider. Coronavirus and the related issues it's caused for employment and mortgage payment forbearance quickly crushed all previous notions about how poorly mortgages could perform versus Treasuries. The biggest divergences of the past took many months to erase. If that's the case this time around, it wouldn't be until 2021 that…(read more)

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