Although U.S. bond yields spiked to 19-month highs last week as mortgage securities fell and swap spreads widened, rumors that the Federal Reserve will raise interest rates more than the expected quarter point on June 29 made at least one MBS portfolio manager react with a smile.

"If the Fed raises it more than the quarter point next week, I think it will be perceived strongly by the market, because it will be viewed as a one-time correction," said the source. "A change in 50-75 basis points is already priced into the market. So the real fear is that it would be 25, which would leave it murky as to what the Fed is going to do going forward."

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.