Halister News

(Bloomberg) -- Mortgage-related paying helped widen swap spreads into yesterday’s early jump, as MBS current coupon yields continue to rise, writes Morgan Stanley in a client note ** Current coupons MBS has risen ~30bps over past three sessions to 2.84% as of yesterday’s close

• Nomura analysts write in a note that it’s clear some recent convexity-forced duration shedding has been a factor into recent selloff
  • They estimate mortgage servicers sold ~$20b of 10y UST equivalent of duration to rebalance, due to rates sell- off that has already occurred over the past month, judging by the behavior of MBS, rates and swap spreads
• U.S. 10y swap spreads widened as much as 4bps yesterday, before almost entirely erasing the move
• NOTE: A rise mortgage rates reduces the amount of mortgage- borrowers that are likely to refinance, this acts to extend MBS duration, as prepay rates are revised lower
  • As a result of extended MBS duration, those portfolios who wish to main a steady duration target, will offset this via shedding duration through paying in USD swaps