Pass-Throughs Rise Slightly As Treasury Prices Are Flat
May 03, 2011
Traders said pass-through prices were supported by continued buying, although they added that activity was sporadic. Thirty-year conventionals rose 2/32, while Government National Mortgage Association 30-years rose 3/32. Tuesday's most notable trade was a purchase of a little more than $100 million of conventional 6.5% securities. However, the news that the Federal Reserve Board's Open Market Committee was leaving interest rates unchanged generated little response, with one trader characterizing it as ``a big, non-event.'' Overall, traders said mortgage-backed securities were ``doing well'' Tuesday, trading about a tick stronger relative to Treasurys than on Monday. By comparison, the 10-year Treasury used as a benchmark for 30-year pass-throughs was unchanged from Monday's close. Clemmons Held were Tuesday's best performer, continuing the trend seen over much of the past week, while prices of five and seven-year balloons were also strong, up 2/32 in general. Balloon securities are securities that follow a string of small payments with a larger lump-sum payment at maturity to settle the debt; they are attractive to new home buyers who expect their incomes to increase, or to people who expect to sell off their property and pay off the loan in a shorter period than if they had borrowed with a conventional mortgage. 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.
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