For certain agency mortgage investors the quote attributed to the 18th century banker Baron Rothschild to “buy when there’s blood in the streets” brings the current environment to mind.
With the Federal Reserve announcing unlimited purchases of agency MBS and Treasuries on Monday, Treasury yields are likely to move lower while mortgage spreads tighten. The move has already begun in mortgages. The Fannie Mae 30-year current coupon spread over a blend of 5- and 10-year Treasuries, a popular valuation model, had tightened to 1.39% at Monday’s close from a recent high of 1.80% on March 19. It was at 0.90% at the end of last year.