The Sound of Silence: Agency MBS Weekly | North America

Research evidence excerpt

The Sound of Silence: Agency MBS Weekly | North America

IdeaM

Market Recap

Rates twist-steepened in a week that started with an oil-drive rally and ended with a focus

on central bank responses (or lack thereof). Going in order of least to most impactful, the

BoE held rates as expected, the BoJ also kept policy rates on hold, though our economists

pulled forward expected hikes to Oct 2026 and March 27, and data point to a yen

intervention of around $53bn, which caused the yen to move from 163 to a low of 159. Of

course, the big excitement was the FOMC meeting on Wednesday, where the Fed stayed

on hold despite three dissents from Hammack, Kashkari, and Logan.

Markets took the initial pricing of September policy action from more than one hike to a

low of about 50% chance before settling in around the current 2/3 pricing. Given Chair

Warsh's lack of guidance and comments around alternative measures of inflation, the

back-end sold off, with the 30yr note reaching the highest level since June 2007. Overlaid

upon this was continued volatility in AI/tech names, causing mixed broader macro actions.

Exhibit 2: Current coupon conventional OAS tightened 4bp Exhibit 3: 2s-10s steepened 8p while 1yr10yr was unchanged

(and 4bp vs. swaps, not shown but look at MSCCSOAS Index) on the week

CC TOAS Fed buying nVol 2s-10s

curve

Fed reinvesting No Fed buying 140 240

80 125 180

60 110 120

40 95 60

(bp)

20 80 0 TOAS

65 -60 0

50 -120

-20

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

-40

1yr10yr vol 2s-10s curve (RHS)

Source: Yield Book, Morgan Stanley Research, Bloomberg

Source: Yield Book, Morgan Stanley Research Note: Since 2016, uses desk assumptions for deliverable,

instead of YB; as of Thursday close