Mortgage Mayhem

Since 1/1/22, the 30-yr mortgage/10-year Treasuries spread widened by three quarters of a point. Why? The Fed announced that it will be reducing its balance sheet and they were a non-interest rate sensitive buyer. Volatility, be it actual or implied, rose substantially and that can cause prepayment which hurts investors. Also, the primary/secondary spread widened slightly, and critically, the MBS option-adjusted spread (OAS) to Treasuries widened dramatically.