MBS Day Ahead: How High Are Those Eyebrows?

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Posted To: MBS Commentary

Stop me if you've heard this one before. Here's a formula for one of the ways bond markets move: Rates fall based on a particular risky eventuality. While that the likelihood and the impact of that eventuality is being assessed, the rally continues. As soon as more dire outcomes start getting checked off, yields begin to move higher until the the rally is mostly erased. That's a pattern that plays out time and again in bond markets. Most recently, it has played out with Italy and European political risks. With the confirmation of Italy's new government fully finalized as of yesterday, it's no great surprise to see bonds back in line with the sideways range that existed before Italian drama began. The unfortunate reality of this move is that it hasn't even come close…(read more)

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