Mortgage-Backed Bonds Gain, Helped by Lower Volatility
March 29, 2011
Traders said market players felt mortgages had fallen too far behind when Treasury prices rose Tuesday. In addition, participants were encouraged by signs of lower volatility, traders said. Stability tends to lift the prices of mortgage-backeds because it reduces the cost of the options built into the securities. Meanwhile, $600 million of collateralized mortgage obligations put up for sale by a large East Coast insurance company met with an enthusiastic response from Wall Street. Traders reported the securities drew bids at the rich end of recent trading levels. Collateralized mortgage obligations are mortgage-backed securities that have been sliced into parts to offer different yields and different levels of risk. Traders reported the bid list all sold to Wall Street and regional dealers. In 30-year pass-through trading, 8% coupon securities gained 1/8. However, other coupons performed less strongly. 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. Fifteen-year pass-through traders said they had seen up-in-coupon trades Wednesday. Buying was particularly noticeable in Federal Home Loan Mortgage Corp. 8% and 8.5% securities, they said. In up-in-coupon trading, traders sell pass-throughs with lower coupons for those with higher coupons: for example, swapping 7% coupon pass-throughs for those with 8% coupons.
VastPress 2011 Vastopolis
