Mortgage spreads refuse to tighten as originators wait for a real rate path
Housing finance is still a rates market, not a housing market.
Suburban housing and city finance contrast
NEW YORK — The mortgage basis looks cheap on a spreadsheet and expensive in a scar. Money managers said they have been offered this trade before, and both times a rates backup turned convexity into a cost center.
Originators are not in a hurry either. A tighter spread that is immediately given back in a 20-basis-point yield spike does not help the lock desk. They would rather stay short convexity than be heroes.
That standoff keeps mortgage rates higher than a simple funds-rate story would imply. The Fed can cut. The homebuyer still needs the basis to behave.
Elena Vasquez
Senior Markets Correspondent
Covers Treasuries, the dollar, and the policy signals that reprice risk assets.