MBS Day Ahead: Month-End Bond Buying Could Be A Trap


Posted To: MBS Commentary

Who remembers asymptotes from high school? Those are the curved lines that gradually approach a certain level–getting closer and closer, but never reaching it. Sometimes in bond markets, instead of the normal triangular consolidations (i.e. linear trends of "higher lows" and "lower highs" converging), we instead have a static level on one side and an asymptotic line on the other side. A picture makes it easier to see, and it just so happens to apply to the current environment where 10yr yields have had a ceiling around 1.60 (with the brief exception of the Jackson Hole breakout) offset by a lower boundary that has constantly been approaching the upper boundary by smaller and smaller amounts. As the chart shows, the trend strength (measured by the ADX technical overlay-…(read more)

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