MBS Day Ahead: Bond Weakness Getting More Serious

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Posted To: MBS Commentary

After 2 weeks of solid gains, bonds have taken the past 3 days (which includes today's overnight trading) to push back in the other direction. At least part of that story has to do with the yield curve (a topic of increased interest recently, given that the spread between 2 and 10yr yields surged to its narrowest post-crisis levels on several occasions in the past 2 weeks). The curve can be charted just like a yield. Also, like a yield (or MBS price, or stock price, etc.) it can respond to technical levels. Finally, the curve can actually be traded . That means traders don't even have to take a position on 10yr yields going higher or lower. They could simply place bets on 10's getting nearer to or farther away from 2yr yields. When any line on any chart has been pushing long-term…(read more)

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