Mortgage Spreads Decompress But QE3 Divergences Start To Get Priced In

As Bernanke was asked for the umpteenth time on LSAP and more specifically MBS purchases, the initial modest compression in mortgage spreads reversed and widened. However, TSYs and stocks diverged very notably as we suspect an initial kneejerk reaction to QE3 saw both being bought (and the USD weaken) long the half-life in this divergence?

Mortgage spreads did initially compress as Bernanke noted the possibility of additional MBS purchases should the situation warrant them. However, as equities rallied and TSY (rallied!!), the mortgage spreads deteriorated rapidly.

It did seem a little premature to be overly aggressively trading the QE3 divergence though

UPDATED CHART: more craziness

Charts: Bloomberg