Best Closing Levels since May 2013

MBS RECAP: Best Closing Levels since May 2013
Jan 6 2015, 5:35PM


Both Treasuries and MBS hit their best closing levels since May 2013 today as the global flight-to-safety continues.  Make no mistake that this move has been, and continues to be driven by Europe.  Oil prices are a temporary helper at best, and a byproduct of actual fundamentals at worst.  For now though, their movement has been synergistic enough to get lots of credit.


Other factors include the fact that today is only the 2nd serious trading day of 2015, and we often see a flood of tradeflows come back into the market after the holidays.  Sometimes these add momentum to a previous trend, and other times (like now), they quickly get markets back in line with the trends that were in place before the holidays.


The most notable thing about the current rally is that it didn’t follow that familiar pattern where trading levels correct aggressively back in the other direction.  True, there was a correction after European bond markets closed for the day, but it wasn’t even a shadow of the pull-back experienced after October 15th’s aggressive rally.


Economic data was disregarded, which is useful to know as it confirms the focus is elsewhere.  Speaking of elsewhere, Europe will release a big inflation report tomorrow before domestic markets open.  It could easily set the tone and determine whether this rally continues.  Past precedent suggests a pull-back regardless, but other circumstances suggest that’s not a given just yet.



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