Home / Investing / Mortgage coverage sputters, depleting the energy behind Treasury bonds (Fed Tap Out Out) – Investment Watch

Mortgage coverage sputters, depleting the energy behind Treasury bonds (Fed Tap Out Out) – Investment Watch

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by confused interest

I had to read this Bloomberg headline several times: “The swarms of locusts that ravage East Africa are the size of cities”


Are the swarms the size of cities or lobsters? If so, they are quite large lobsters!

But to the Treasury / MBS news.

(Bloomberg) – The mortgage market helped boost US Treasury yields. UU. As they shot toward historical lows in 2019. Don't expect a repeat in 2020 because that propeller seems to be depleted.

The owners refinanced mass loans last year, as they sought to set lower rates. As the original loans disappeared, investors in mortgage-backed securities bought swaps to tidy up their recently out of control portfolios. Such convex coverage tends to reduce Treasury yields. That dynamic was especially prominent in March 2019, as the 10-year bond rates sank 31 basis points after a surprise change in Federal Reserve policy.

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Today, the relationship seems to have weakened. A Bloomberg Barclays index of the duration of the MBS portfolio has fallen since the beginning of this year, but longer-term swap differentials have remained stable. This decoupling is evidence that coverage flows will now probably not affect returns. The index closed at 2.65 on Tuesday, a third consecutive daily decline.

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<p>So, the Fed seems exhausted.</p>
<p><img class=And he has trouble making the markets dance.

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