/MBS: Morgan Stanley's Andrew Sheets and....>

US TSYS: /MBS: Morgan Stanley's Andrew Sheets and Jay Bacow said "going short

the MBS Basis" is one of their "top trades. 

- They "add short FNCL 3s vs. rates to get short mortgage spreads near

post-crisis tights and long rate vol near all-data lows. Short FNCL 3s versus

rates: We think that this trade, recently highlighted by our mortgage and rates

strategists, deserves a place within our cross-asset 'top trades' as a hedge

with compelling valuation."

- They said "short spreads" are "near tights and vol near lows" so the "trade

effectively leaves one short spreads near post-crisis tights and rate volatility

near post-crisis lows. We think that's an attractive combination and a highly

liquid set of assets."

- They also add that "Fed balance sheet reduction could be a catalyst: The Fed's

balance sheet will start to shrink this month, and even that we expect will

weigh more heavily on MBS than Treasuries."