Spread on mortgage backed securities over Treasuries tightened today, according to John Jansen at Across The Curve.
Mortgages are closing about 6 ticks tighter to Treasuries and about 3 basis points tighter to swaps.One dealer described the flows as "chunky". The same dealer noted that the buyers today were from the genus "long term". Some profit taking emerged late in the day but MBS held its gains.
The move tighter in MBS is especially impressive in light of the stock market meltdown. In the recent past that was a formula for spread widening. The price action today is indicative of broad based buying. It will be interesting to see if the spread improvement can be maintained if stocks should have a Friday meltdown tomorrow.
We're actually not that surprised by this, given Bill Gross's words today that Pimco was buying mortgages and the speculation that he may be trying to force the hand of the Treasury into a bailout scenario. Seems like a perfect recipe for an equity decline and a MBS climb.
MBS [Across The Curve]