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MBS Day Ahead: Random Volatility Risks As Traders Tune Out

Posted To: MBS Commentary

It's a good time to revisit the primer on illiquidity unless the term is 2nd nature for you ( here it is ). Illiquidity is definitely a factor today as traders have undoubtedly targeted it as a perfect candidate for a 3-5 day weekend due to the absence of any relevant events on today's econ calendar (and limited events next Mon/Tue) combined with the time of year (i.e. last week before school starts, in many cases). In a nutshell, illiquidity makes it easier for bonds to move, for better or worse. The fewer dollars being traded, the bigger the impact of each dollar. In this way, it only takes a few big trades to send the entire market moving in one direction or another. On data-free days like this, the issue is only compounded by the fact that many traders are simply looking for cues…(read more)

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