MBS RECAP: Bonds Scratch Out Victory Despite Headwinds


Posted To: MBS Commentary

Had it not been for a fairly abrupt sell-off in stocks (the first big day of losses in 2018, and the biggest open-to-close sell-off since late August for some major averages), there's no guarantee that bonds would have ended the day stronger. Even then, only some of the yield curve was stronger–specifically 7yr notes and higher. This is part of the "curve flattening" trade that dominated 2017 (2yr and 10yr yields getting closer together). That trade grew volatile at the end of the year as well as last week, corresponding with our last 2 big sell-offs. As the curve flattened over the past few business days, longer-term yields (which more closely follow mortgage rates) have been able to hold under key ceilings (like 2.60% in 10yr yields). There are important floors too –like 2…(read more)

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