MBS Day Ahead: At Risk of Confirming Yesterday’s Fears

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Posted To: MBS Commentary

Yesterday's fears: that the gains were just a byproduct of trading positions Particularly, bond bears were covering bets on higher rates Traders getting neutral ahead of tomorrow's ECB Announcement Today: yet another day without any big-ticket economic data Yet another day at the mercy of 'tradeflows.' What is a tradeflow? Tradeflows refer to the broader phenomenon of market participants opening and closing long or short positions. Take, for example, an investor who opened a new "short position" (selling bonds) as rates began rising. When rates break higher through a certain target and then fall back below that target, the trader would likely "cover" or buy back the bonds they sold short when rates were lower. In this sense, "short-covering" is…(read more)

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