Mortgages loans took a beating yesterday into the sell-off as they underperformed 3-4 bps versus their treasury counterparts. Up-in-coupon continues to feel the most pressure as we saw lenders move their hedge coverage from 3.5s to 4.0s with note rates changing execution. FNCL 4.0 for April settle closed yesterday at 103-26 and have sold off over 20/32nds on the week with yesterday alone responsible for over 10/32nds. Trust IO has risen into the sell-off as the interest only component on vintage bonds have become more valuable.
It was a bad day for fixed income while stocks were mostly unchanged on the day. The yield on the 10-year treasury rose to 2.59% and is bumping up against 2.60%, the level Bill Gross suggested triggers a bear market in bonds. Oil dropped over 2% to close at $49.28 a barrel, the lowest level since November as the OPEC cuts are doing little to constrain US reserves. Mario Draghi, the ECB president, spoke yesterday highlighting that the euro economies have strengthened and confirmed stimulus will continue with further cuts in interest rates unlikely.