| From Marketwatch.com: Agency mortgage spreads (to swaps) have widened during the third quarter to 128 basis points compared to 110 basis points at the end of the second quarter and a 141 basis-point peak in mid-March.Funding stresses, a worsening outlook for credit performance, and "buyers" strike are the negatives affecting mortgage-backed securities (MBS). The "buyers strike" relates to both the government-sponsored entities (GSEs) being on the sidelines plus other investors waiting for some resolution to the GSEs' issues. As a result it is unlikely that MBS spreads will tighten meaningfully until there is resolution around the GSEs.
While mortgage spreads have widened, dollar price of agency mortgages hasn't changed nearly as much given the decline in interest rates. Hybrid prices have declined by about 30 basis points and fixed rates are unchanged. ...... Full Article: Source
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