As inflation concerns dominate price action in Treasurys, the MBS market once again faces extension risk and market participants are starting to gear up for the event. For instance, analysts from RBS Greenwich Capital believe that should 10-year Treasurys rise to the 4.65% range, extension would once again take center stage.

In its most recent report, Countrywide Securities analysts enumerated the factors currently setting the stage for extension risk, including the fixed-rate agency sector trading at a discount, as is the ARM market, rising home prices pushing the National Association of Realtors' affordability index to its worst level since 1991 and Freddie Mac's 30-year mortgage rate now exceeding 6.00%. The National Association of Realtors reported existing home prices rose to average $219,400 in August, up from $215,200 in July.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.