MBS RECAP: Bonds Slightly Weaker After Sorting Through Another Red Herring Delivery

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Posted To: MBS Commentary

Yesterday: Japan . Today: China . Stakeholders, journalists, and even a fairly wide swath of bond traders are eager to make sense of the past 2 days of weakness, even when that weakness isn't easily ascribed to a single headline or development. The first big trading idea in 2018 is to SELL longer-term bonds faster than shorter-term bonds (aka a "curve steepening" trade). We knew this was a risk. We also knew the resulting movement wouldn't come with a satisfying way to explain it. After all, who wants to say "supply-related anxieties in govies and corporates combined with a glut of new year liquidity and repositioning in bond markets (even if it's only marked profit-taking on 2017's "flattener" trade) to force a break above key technical levels, fueled…(read more)

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