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MBS Day Ahead: Short Squeeze Helping Bonds Push Boundaries

Posted To: MBS Commentary

A short squeeze occurs when bond yields fall to levels that force short sellers to cover their positions ( read more here , if that didn't make sense), and it's one of the key reasons that bonds occasionally rally in the absence of other justification. This morning has seen just such a short squeeze, which is especially notable on the approach to a Treasury auction cycle. That said, today brings the 3yr auction and 3yr notes are not rallying nearly as much as 10yr notes (which will be auctioned tomorrow). As such, we may have seen the extent of today's rally right at the open (i.e. traders may be increasingly cautious on 10's as the auction approaches). For now though, 10's are attempting to break below the consolidation pattern that's been intact since March. The day…(read more)

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