MBS RECAP: Strong Start And Weak Finish Leave Bonds Little-Changed

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Posted To: MBS Commentary

The bond market started the day off in much stronger territory after solid overnight gains. These could be viewed as a factor of weak equities markets or simply due to a general risk-off trade that has been going on for the entire month of May. Either way, each additional notch toward lower yields raises the risk that the rally will bounce if for nothing other than technical reasons. Paradoxically , the expectation of a bounce toward higher yields can fuel further gains due to short squeezes . As far as actual events causing fear of bounces, today's 7yr Treasury auction was nothing like the 2 and 5yr varieties seen so far this week. It was quite a bit weaker than expected. In its defense, the auction occurred at what were nearly the best yields seen in well over a year, but weakness is...(read more)

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