Subprime and credit worries continued to insinuate themselves last week into broader areas, such as commercial paper and money management firms. This kept the flight to quality intact, swap spreads moving wider and volatility higher - all not to the benefit of MBS. The gains the MBS Index had in the first two weeks of August have now evaporated, and month-to-date through Aug. 14, the index is down 17 basis points versus Treasurys. On a positive note, MBS are doing better than the ABS Index, which is down 22 basis points, and the CMBS Index, which is off 77 basis points so far in August.
Since Aug. 8, when the 10-year Treasury yield hit a high of 4.86%, yields have declined 10.1 basis points to 4.759%, the price has risen to 100-04 from 97-07, and the 2s10s curve has steepened to 38.3 basis points from 21.9 basis points. Over this same period, the 30-year FNMA 5.5% coupon is down 1/32, and 6% coupons are off 2/32s.