Rates and MBS Holding Despite Treasury Pressure

With treasury yields up substantially this morning from yesterday, the Mortgage Backed Securities market is under pressure. Typically as treasury yields rise investors leave our market and move into treasurys... as the yield comes down they return to our market.

This relationship between treasurys and MBS is a question of competition. Both markets catering to the same type of investor (long term) so it's a price play as to which market to invest into at any given time. For this reason treasurys and MBS have an indirect relationship and behave inversely. Although one does not directly influence the other, they usually move in sequence; when one goes up the other down, and vice versa.

Today we have seen the yield on the 10 year treasury climb from 3.637 to 3.673, but the Mortgage Backed Securities market is holding, only down two ticks on the day.

Considering the recent consolidation we experienced, and the Fed exiting the mortgage backed securities market at the end of this month, I find it incredible that the MBS levels are holding.

Point in fact there is a fine line between buyers and sellers in any market, and currently buyers and sellers are comfortable with where the MBS is positioned. This at least for the time being is excellent news for everyone looking to secure home financing. With the dawn of higher rates approaching (March), every extra day we have to take advantage of these low interest rates is something to be cherished.

I should also mention because of yesterdays gains, open market rates sheets are currently better than closing rates sheets yesterday. What does this mean? Rates are the best they have been this month. Yesterday the MBS hit resistence levels and bounced off them a number of times, but still finished up on the day. As a result pricing agents at various lenders published better rates this morning for us mortgage brokers to offer to you. Even though the MBS is currently down 2 ticks, this pricing is still available. Moreover, a 2 tick drop in secondary does not warrant a reprice for the worse, so I expect these rates to hold as long as the MBS does not sell off in the coming hours.

If you are currently in the process of securing financing, now would be the time to lock. We have hit the cap of secondary, and have begun turning down which will inevitably bring worse pricing. Even though 2 ticks does not warrant a reprice for the worse, banks can hedge against the market and issue a reprice before it is warranted as a means of establishing some security in a volatile market. How can they get away with this type of action? Most loan officers are not linked in to secondary and do not see the movement as I do and therefore are unaware that the bank has hedged against the market. Because they do not know, you are never informed.

That's why this is "Mortgage Insiders" we bring you the information others simply don't have, or are unwilling to share with you.