How Crazy Is This Move in Rates and Refis?

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Posted To: MBS Commentary

I was surprised to open up shop this morning and find yields and MBS right about where we left them yesterday afternoon. I was also surprised yesterday afternoon when yields were able to hold under 1% by the end of the day. In other words, this bond rally has not only been impressively large, but also impressively resilient. Does that mean traders know where they want rates to go and are just taking their time (relatively) getting there? No, I don't think so. I think yesterday was a factor of disillusionment with the Fed's rate cut, or perhaps a wake up call to certain investors due to the rate cut. The bond market has the complicated task of balancing the following sources of demand: temporary holding area for panicked cash seeking a sideline short positions seeking to cover to avoid…(read more)

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