Agency MBS Spreads Widest Since '80s

Spreads between agency mortgage-backed securities and comparable Treasuries have hit their widest levels since the mid-1980s, according to mortgage researchers. The spread between the 30-year Fannie Mae current-coupon MBS and the average of on-the-run five- and 10-year Treasuries recently stood at its widest level since the summer of 1986, said Art Frank, director and head of MBS research at Deutsche Bank Securities. He said supply-demand imbalances resulting in part from heavy sales by servicers, leveraged investors, and money managers caused the spread widening. "The past three sessions have seen mortgages lose all of their gains as the pace of servicer buying has declined and hedge funds continue to de-leverage," said Noah Estrin, an RBS Greenwich Capital MBS trading analyst, in a March 5 report.