MBS Day Ahead: No Reason to Expect The Plan to Change

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Posted To: MBS Commentary

After worldwide rates hit all-time lows on the heels of Brexit, they consolidated in a narrow, sideways pattern until someone came up with the next plan. That plan began to take shape in early September after some market participants interpreted European Central Bank (ECB) President Mario Draghi as dropping hints about tapering ECB asset purchases–something that would have an analogous effect to the taper tantrum of 2013. On the following chart, looking at the underlying candlesticks, you can see the noticeable increase in volatility at the beginning of September. Yields immediately moved to test the long term inflection point (white line), then the lower end of the trend channel (teal dotted line), and now have returned to the long term inflection point to wait out the time until the ECB's…(read more)

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