There's no great way to be emphatic enough about how completely worthless MBS pricing is when the bid/ask is. Over the same time frame, 5.0 coupon bid/ask never dropped below. Now chew on this fresh example: From 8:11am to 8:50am ET this morning, the bid/ask spread on 4.0 and 4.5 coupons moved in a range from 0.06 to. When buy/sell (aka 'bid/ask') quotes are close to one another, that's what we would consider a high quality price and a liquid market. Intraday pricing feeds generate A LOT of quote activity that doesn't necessarily correspond with actual volume. At any given moment when you're looking at an intraday MBS price, there's a certain quality/accuracy/reality associated with that price based on how close it comes to the prices where trades are actually occurring.

What do I mean by 'better?' Let's put it this way. NO IT'S NOT! In fact, 4.0 couponsВ were better than 4.5 coupons up until the past few hours, and 3.5 couponsВ were better than 4.0 couponsВ throughout April, even though we were quoting rates over 5% (3.5 coupon maxes out at rates of 4.625%). 'B-b-b-but.' you may ask, 'if 5.5 coupons are just right, and 5.0 coupons are arguably just a bit too low, sure it has to be better to watch 5.0 coupons than going even lower to the 4.5?!' In fact, the same was even true for 4.5 coupons until very recently. There's no depth from previous trades and new day-to-day volume / liquidity is best described as pitiful. Your logic is sound, but there's a big problem right now:В compared to lower coupons, 5.5s are effectively nonexistent. rates of 5.75-6.625%), wouldn't it be a no-brainer to watch 5.5s?' You may be wondering, 'if a 5.5 coupon is the best match for what I'm seeing on my rate sheets (i.e. Prevailing rates consequently suggest MBS coupons of 5.0 and 5.5, but these are absolutely NOT the coupons that should be followed for the purpose of identifying intraday trends and risks. In the past, for the most part, that's been easy for a loan originator to determine based on the rates being quoted (as long as the originator understands that MBS coupons can accommodate rates that are up to 1.125% above the coupon). Today, however, there's an urgent need to discuss an often confusing topic when it comes to the bond market's relationship with mortgage rates: which MBS coupon should you be watching? The morning commentary is typically focused on market movement and broader bond market considerations for the rest of the day. ***REQUIRED READING for anyone who doesn't fully understand why the 4.5 UMBS coupon is far better to follow than the 5.0 intraday (for now).*** Mortgage Backed Bonds and Securitization.

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