MBS Day Ahead: Bonds Start at Disadvantage As Europe Reacts to Yesterday

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Posted To: MBS Commentary

The timing and nature of yesterday's Italian headlines created a fair amount of risk for bond markets today. As we discussed yesterday (in the Huddle and the Recap , for instance), Europe didn't get much of a chance to trade news that likely suggested a bit more weakness than we saw. What news was that? In not so many words, Italian politicians are figuring out how to move forward with selecting lawmakers for a new government. This helps to avoid elections that ran the risk of turning into a vote on on Italy exiting the EU. That potential exit was the primary source of motivation for the recent bond market rally. The overnight move would quickly look less interesting if we zoom out to the bigger picture. It doesn't really stand out in terms of size or volatility. Importantly though…(read more)

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