10-Year Yield Plummets

After weeks of hovering around 4.0%, the rate-indicative 10-year Treasury yield plummeted to 3.78% at one point Friday morning, elevating prepayment-related fears among mortgage-backed securities market participants and servicers but giving a boost to mortgage-related stocks."It's been pretty rough this morning," pipeline and hedging consultant Les Parker said of the sudden drop in yield that followed the release of a weaker-than-expected employment report. While insufficiently hedged servicers and pipeline managers reportedly felt some pain as a result, a number of market participants had effective hedges in place that allowed them to mitigate the effects of the unexpected market move, he said. The MBS market, meanwhile, saw a short period of illiquidity right after the release of the job numbers, according to Art Frank, director of mortgage-backed securities research at Nomura Securities International. However, he said some stability later returned to both the MBS market and the 10-year, which was trading near 3.83% at noon.