MBS Day Ahead: Longer-Term Rates Operating on Different Set of Fears


Posted To: MBS Commentary

As we approach Thursday's European Central Bank (ECB) announcement and press conference, we are seeing a clearer display of underlying market motivations . These motivations can be best understood if we consider bond markets on a a spectrum of longer-term and shorter-term debt. Things like 10yr Treasuries and Fannie 3.0 MBS represent the sweet spot of "long-term." Rates that range from "overnight" to 2yr Treasuries represent the sweet spot of "short-term." When Fed rate hike expectations are driving the entire bond market, long-term and short-term debt would be moving in relative proportion. When long and short-term debt have different concerns, we see them diverge. They're diverging: This makes perfect sense when we consider the big market movers in the…(read more)

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