MBS RECAP: Potentially Ominous Shift But No Massive Damage For Bonds


Posted To: MBS Commentary

The big takeaway from yesterday's Fed reaction was that the rally was finite–not motivated by a new development, but rather by a correction to an overdone trade ahead of the Fed. In other words, there was a magic line in the sand (the equilibrium point where traders made it back in line with Fed rate hike expectations) that would mark the end of the correction. Today's trading raised the possibility that we've already reached that magic line. Things began innocently enough with Treasuries holding fairly flat during Asian market hours. European bond markets opened in stronger territory but weren't interested in staying their. German Bunds rose roughly 7bps by 7am, pulling US 10yr yields up 4bps in the process. The volatility during the European hours was really the highlight…(read more)

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