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MBS Day Ahead: Why The Range Risk in Treasuries Matters to Mortgages

Posted To: MBS Commentary

There was a time in the very recent past when we could almost completely ignore the implications of 10yr Treasury yield movement on mortgage rates. While this was definitely a break from the historical norm, it wasn't a completely foreign exercise given the massive divergences seen at times in the past. Those divergences resulted from big news and big changes to MBS valuation considerations, whether it was the mortgage meltdown or the Fed stepping in with the mortgage-specific QE3 purchases. Most recently, it was the mortgage-specific impacts from coronavirus. Simply put, while the US government's ability to make payments on Treasuries was at no risk of changing, the cash flows back to MBS investors from pools of underlying mortgages were at serious risk. As such, mortgage rates spiked…(read more)

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