MBS RECAP: Bonds Move Right Back to Pre-ECB Stance

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Posted To: MBS Commentary

Yesterday we discussed the rally in bonds as a function of short-covering . That meant traders were in a defensive position on Tuesday night–betting on rates moving higher–and then closed those positions yesterday. Closing a short position equates to "buying." Buying results in yields moving nicely–and even unexpectedly lower. The problem with short-covering rallies is that they're not indicative of organic buying demand. That means that the news or event prompting traders to move to the sidelines has to have a positive impact on bond markets or trading levels will simply move right back to where they were before the short-covering rally. In a nutshell, that was today. Yields never even thought about approaching some of the higher recent levels, but neither did they make a…(read more)

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