MBS Day Ahead: What Is a Short Squeeze And How Could It Help Us?

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Posted To: MBS Commentary

The notion of "positions" is extremely important to the bond market (and to any market for that matter). At the most basic level, a LONG position seeks to profit from prices rising (or yields falling) and a SHORT position seeks to profit from prices falling (or yields rising). Quite often, the structure of accumulated positions in the Treasury market acts as its own driver of momentum . The key reason for this is the very logical practice of traders protecting themselves from undue losses with automatic trades unsurprisingly known as "stop losses" or simply "stops." For instance, if the market is overly long, and if a big chunk of longs were set-up around a specific trading level, if yields happen to move higher than that trading level (or something close to it…(read more)

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