MBS Live Recap: Another Chance to Not Get Your Hopes Up

Tiny pockets of gains have come and gone in the vast sea of red that's dominated 2018 so far.  Each pocket has attempted to lure optimists into a "bull trap."  In other words, originators want to be bullish on rates, so they're more likely to take the best available opportunities to get bullish--especially if no such opportunities have presented themselves recently.

Unfortunately, we're in a pervasive uptrend in rates, and what look like tiny pockets of opportunity have actually been periodic consolidations that help the selling-spree catch its breath before rates continue higher.  Is it the same story with the past 2 days of stability?  In all likelihood.  Granted, the bear case for bonds is increasingly being priced-in, discussed, and understood among traders, but in this instance, the bullish case would require a catalyst.  

There's a very real risk that the past 2 days have simply been profit-taking among short-sellers after rates spiked on Wednesday (short-sellers of bonds must buy bonds in order to book profits).  It also stands to reason that traders in general are slightly more likely to cover any type of position ahead of a 3-day weekend that will leave foreign markets open on Monday.  Bottom line, while I always HOPE that these "tiny pockets" develop into amazing reversals toward lower rates, I wouldn't be betting on it just yet--at least not based on anything that happened today.  Stay safe.