Mortgage-Backed Securities Slip But Outperform U.S. Treasurys
May 05, 2011
Thirty-year conventional pass-throughs fell 13/32, with Government National Mortgage Association securities falling 15/32. Mortgage traders said the declines reflected a newly bearish perspective among investors. The change in outlook appears to have taken place over the past three days, a trader said. Mortgage bankers were seen selling new supply into the market, breaking a recent dry spell, traders said -- but the quantities were small. Meanwhile, the heavy flow of new collateralized mortgage obligations (CMOs) continued with the announcement of Federal Home Loan Mortgage Corp. deal number 1888. Collateralized mortgage obligations (CMOs) are mortgage-backed securities that have been sliced into parts to offer different yields and different levels of risk. Underwritten by Greenwich Capital Markets Inc., the $180 million offering brought the total of new agency single-family CMOs announced in the week to $580 million. Dollar-roll prices were strong, but traders were divided about the reason. One said levels should be expected to rise when long-term yields climb but the cost of short-term financing remains constant. A dollar roll is a sale of a mortgage-backed security with an agreement to repurchase a similar security for a future month at a specified price. Other traders suggested one of two possibilities: either heavy buying by bearish investors is creating fears of a supply shortage that would require dealers to borrow securities in the dollar-roll market, or a small number of accounts are manipulating prices to boost profits. A pass-through is a security made up of a pool of debt instruments, with the income from the debt passed through an intermediary -- usually a government agency or investment bank -- to the investors.
VastPress 2011 Vastopolis
