U.S. MBS Agency Monthly Report: Outperformance in May as Fed Noise is muted

The MBS market began the month in a guarded stance, as the latest in a series of highly anticipated Fed meetings held the sector at bay.

Once the FOMC meeting passed (May 5), rates having been raised an expected 50 basis points and MBS selling put on the back burner, spreads began to tighten, and the index was an outperformer for the first time in several months.

MTD index performance gained +82 basis points against riskless Treasury benchmarks. Prices for MBS were over ½ point higher, outpacing Treasuries which veered lower.  10yr U.S. treasuries yields lowered 11 basis points to 2.87% (touching 3.14% pre-FOMC), 2s10s yield curve operated in a 30bps range (net steeper 3 basis points), with 3m10y Vols easing 20bps (+104), as Fed Speak and related “noise” ceased over the final two weeks of May.

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