MBS Day Ahead: Bonds May Be Taking a Lead-Off For Their Next Move

Posted To: MBS Commentary

I frequently use the lead-off analogy to characterize financial markets' propensity to start drifting in the direction of their next most-desired direction. Defining "most-desired" is tricky business because it can often be the case that bonds don't know exactly which direction that will be until they get all the data. The next 4 days offer a great example. If, for instance, all of the key events unfold in a bond-friendly manner, bonds would likely be compelled to rally. But if we adjust the probabilities of the outcomes to 50/50, a rally is far from guaranteed. In fact, technicals and tradeflows are suggesting the "lead-off" in this case may be toward higher rates. That leaves the onus on the events to unfold in a bond-friendly manner, or else... For the record...(read more)

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