MBS Week Ahead: Defending The Gap Without European Help Could Be a Challenge

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Posted To: MBS Commentary

Where were you 3 weeks ago when we were just beginning to discuss Italian political risks? I don't remember where I was, but I definitely know where rates were. 10yr yields had just broken above 3.04% for the first time since 2011 and quickly moved over 3.10%. At the same time, the European risks were pulling German Bunds quickly lower, setting us up for a tug-o-war. Actually a better name would be "tug-o-battle." Treasuries have been determined to lose the war on higher rates since 2013 at least, and have consistently been bailed out by European drama (first with ECB QE, then with Brexit). In this sense, US rates have been forced to win their fair share of battles despite continuing to lose the war. The most recent Italian battle is small potatoes in that bigger picture, but…(read more)

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