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MBS Day Ahead: The Boring Business of Trading an Inevitable Future

Posted To: MBS Commentary

While there may be a good amount of drama and suspense when it comes to watching coronavirus take its toll on the economy, there's no mystery. This isn't like past recessions where a realization gradually sets in. We may not know exactly how big the hit will be, but we know it's inevitable, big, and immediate. All of the above is fertile soil for the recent behavior in bonds. March volatility can be forgiven as a byproduct of extremely poor liquidity, big issuance concerns (high supply = lower prices/higher yields), and a brief learning curve for the Fed with respect to how aggressively it needed to buy bonds. This can be seen in the highlighted section of the following chart. Bond volatilty was accompanied by capitulation in stocks. Both have calmed down and made gains as the fiscal…(read more)

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