MBS RECAP: Widespread Positive Reprices as Speculators Get Flushed

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Posted To: MBS Commentary

Given the pace and scope of recent bond market weakness, there are more than a few traders that have open bets on rates moving higher--aka "shorts." This isn't always as simple as a bet on rates in general, but can also come in the form of bets as to the shape of the yield curve. In other words, will 10yr yields get closer or farther away from 2yr yields? Will 30's get closer or farther from 5's, and so on... At a certain point, these bets will be covered if the market moves far enough in the other direction. In other words, if I'm betting on higher rates (aka "selling short") and rates fall a certain amount from their most recent high, I will cover (aka "short-covering") my position by buying. That's exactly what happened in German Bunds during...(read more)

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Source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/479190.aspx

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