The New CS Board

[dmorse]

MBS vs Treasury Spreads. I am in the mortgage business and there is something interesting happening which hasn't happened in years. People in the industry are confused why the 10 year is dropping and mortgage rates, while at recent lows, aren't keeping pace. Here is something I posted elsewhere on my thoughts:

I think it is because the Fed has messed with the market over the past decade. There were times were they were focused on by MBS and the spread between FNMA current coupon and 10-year treasuries were almost zero. (http://scottgrannis.blogspot.com/.../the-housing-market...). Now, it looks like the Fed will be focused on treasuries. (https://www.nationalmortgagenews.com/.../fed-to-reinvest...). Treasuries are safer than MBS so the spread can widen during a flight to safety. The spread spiked during the 2008 crisis and was probably only saved by the Fed (the chart in the first link shows this).

An addtional note: The spreads peaked in early 2000 as well.