MBS Day Ahead: Clear Correction May Be Finding Clear Ceiling

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Posted To: MBS Commentary

The first 3 days of this week have offered a clear correction/consolidation to the strong rally of the previous month. This had as much to do with timing and technicals as anything else. In other words, the rally brought yields so much lower, so quickly (relative to other attempts to rally in 2018) that it would have been a surprise to see it continue, especially in the week leading up to an important FOMC Announcement. In fact, much of that rally is predicated on the FOMC Announcement happening in a certain way next week. Given the recent Fed speeches, markets expect more dovishness next Wednesday. The drop in yields equates to the "pricing-in" of the dovishness. Reasonably strong jobs data last Friday (weaker NFP, but strong unemployment and wages) caused investors to question the…(read more)

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