MBS Day Ahead: Short-Term Rates Are Responsible For Recent Pain; Is It Over Yet?


Posted To: MBS Commentary

A certain reality of the recent rate spike needs to be revisited based on conversations I've had with a few clients. Thankfully, it's pretty simple: short term rates have been pushing all rates higher. In general, short-term rates rise toward long-term rates during economic expansions. When they get close enough (or when short-term rates rise ABOVE long-term rates), it's often a sign that a broader reversal is soon to follow. With that in mind, we're moving in that direction, but still have a ways to go. For the record, the gradual rise in the orange line in the chart above is largely a function of Fed policy expectations. Short term rates are infinitely more vulnerable to the Fed's rate hike outlook , so when markets saw the Fed becoming more and more willing to hike, 2yr…(read more)

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