MBS Day Ahead: Bonds Are Just About Done Reacting to Iran. What Next?

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Posted To: MBS Commentary

The bond market and many other markets are still in the process of retracing the steps they took to price-in the risk of a new war in the Middle East. Granted, that risk wasn't exactly full blown, but it was clearly in control of pretty much everything on Tuesday night when Iran attacked 2 air bases in Iraq. The absence of immediate response from the US on Tuesday combined with Trump's speech yesterday to drastically de-escalate the situation (despite ongoing snippets of Iranian rhetoric) and markets have responded accordingly. Even before the de-escalation, the very best the bond market could do was to make it to levels that were STILL slightly higher in yield than the last prominent low in early December. In turn, those early December yields were also just a hair higher than the low…(read more)

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