MBS RECAP: Curve Inversion was The Story Behind The Story

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Posted To: MBS Commentary

Bonds drifted into slightly stronger territory in the overnight session. The move was seemingly devoid of inspiration and had a very technical, mechanical look to it. If there was underlying inspiration, it was the movement in the yield curve (the gap between 2 and 10yr yields in this case). News and developments that make Fed rate cuts less likely only fan the fires of yield curve inversion (i.e. they put upward pressure on shorter-term yields like 2s). While movement in one section of the curve doesn't always imply movement elsewhere, this arguably has a positive impact on longer-term rates (like 10s) at present because it tacitly implies the Fed wouldn't be doing enough to ensure a soft landing. It also further inverts the curve which is seen–rightly or wrongly–as a recession indicator…(read more)

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