As mortgage spreads gapped out last Tuesday to 129 basis points over the 10-year Treasury - approximately equivalent to a full double-A corporate spread - issues of political risk in the mortgage-backed securities market, volatile swap spreads and the spectre of illiquidity are making some market participants wonder whether a new world order has emerged for MBS.

"The market has adopted a new trading paradigm wherein this fear of GSE reform causes swaps to widen, which causes mortgages to widen, and then causes Ginnie Maes to outperform," said an MBS expert. "When people seem more comfortable with it, however, the opposite happens. So it is really a three-part phenomenon: swaps, conventionals and Ginnies are all going their separate ways."

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