MBS Day Ahead: Weakness Extends Overnight, But Trump Isn't The Issue

Posted To: MBS Commentary

There was a lot of build-up for last night's Trump speech. I won't tell you that it didn't turn out to be a market mover, but it wasn't nearly as potent as the anticipation would have suggested. Instead, the losses seen since yesterday afternoon are almost exclusively attributable to a few other factors. The most important factor is Fed rate hike expectations. This is easy to see in today's chart. It's also easy to see how Treasuries broke away from their previously strong correlation with hike expectations (aka "Fed Funds Futures") in the second half of February. Even now, longer-term rates continue to resist Fed rate hike implications, but pain felt in 2yr yields is radiating up the curve and causing visible pain for 5's and 10's. Yesterday's...(read more)

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