MBS Day Ahead: We're Back to Watching Stocks in 2019 (For Now)

Posted To: MBS Commentary

The massive stock selling in Q3 2018 was clearly a big deal for bonds. As soon as the first wave of selling hit in stocks, bonds engaged what we refer to as "the stock lever"--shorthand for the quintessential (and often mistaken) belief that stock prices and bond yields move up and down together. The stock lever is bogus if you think of it as a hard and fast rule (many people do, and they're wrong). But the stock lever is very real if you can appreciate that its relevance comes and goes depending on other factors. In other words, sometimes the stock lever is engaged. Other times, it's not worth mentioning. The QE era largely made the stock lever obsolete because stocks and bonds were able to make gains to their best levels ever--more or less simultaneously. Hey, that's...(read more)

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