The curve flattening and volatility decline that followed the Federal Open Market Committee raising interest rates to 3.75% last Tuesday has made many in the Street ambivalent about MBS. In its statement, the FOMC also indicated that it views the devastation caused by Hurricane Katrina and current higher energy prices as temporary setbacks, implying that it would continue its tightening bias going forward, causing some MBS analysts to fear future bank de-levering.

There are two ways at looking at the MBS market post-Fed. Although volatility - caused by uncertainty with regards to what the Fed is going to do next - is now out of the way, the market still has to deal with the flattening yield curve.

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.