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MBS Day Ahead: Rally Intact But At Risk For a Bounce

Posted To: MBS Commentary

I can’t emphasize this enough: when bond markets have a day like they had yesterday, it’s often followed shortly thereafter by a correction. In the case of a true rally with staying power, that will be a temporary correction, lasting one day. It wouldn’t erase more than half of the previous day’s gains. In the case of a head-fake rally , the correction would erase a majority–if not all–of the previous day’s gains. It’s impossible to know which of the two we’re looking at based on this morning’s trading levels, but we do that the more aggressive momentum indicators are already suggesting the rally is ready and waiting for a cue to bounce. These can be seen in the chart below. The first is the Bollinger Band study–the purple lines around the Treasury candlesticks…(read more)

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