The raising of the debt ceiling helped rein in widening on the agency MBS front this week.
Agency MBS saw funding costs fall from levels that were previously pricing in some chance of a default, according to a UBS research report.
Mortgage pricing reflected this by not widening much in the broad post-ISM “risk-off” move. According to UBS, a week ago, current coupon FNMA 30-years only widened two basis points to 173 versus 5/10 Treasurys and only widened a basis point to 90 versus 10-year swaps.
Even with the threat of a U.S. downgrade, the effects on the agency MBS space are expected to be minimal, analysts said.
"A downgrade could also be months away," said Jeffrey Ho, a research analyst at the bank. "The MBS market is now more concerned about the slowing economy, and dealing with the rally."