MBS Day Ahead: Bonds Fight to Quarantine Yesterday’s Weakness


Posted To: MBS Commentary

We characterized yesterday's bond market weakness as a simple and somewhat logical correction. The initial move was Monday morning's rally that was based on an absence of updates regarding the healthcare bill. In other words, the bill looked dead, thus implying political gridlock. Bonds like political gridlock at the moment because they're afraid that new fiscal policies could stoke the fires of growth/inflation. The "correction," then, would be Tuesday's complete unwinding of Monday's move due to developments that suggested the gridlock wasn't a done deal. 5 day charts paint a clear picture of Tuesday's sell-off perfectly erasing Monday's rally. Today, bonds will fight to quarantine yesterday's weakness, and to characterize it as a mere correction…(read more)

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