MBS Day Ahead: Will Powell Drop Any Hints?
Posted To: MBS Commentary
In ancient financial market times (let's say any time before 2009), a massive economic shock resulted in a pervasive move lower in both stock prices and bond yields. This is a logical way to move away from risk and protect return-on-investment. This dynamic is still very much in play, but it is more complicated in the era of deep involvement by the Federal reserve in open markets. All that to say Coronavirus caused a very logical move lower in stocks and bond yields, but it has been the Fed's reaction that is responsible for most of the movement since mid-March. Without the Fed, liquidity and issuance concerns may have meant 10yr yields remained over 1%, or close to it. Stock volatility would certainly be higher and prices would certainly be much MUCH lower. One can only guess what…(read more)