MBS Live Recap: We've Been Here Before But This Time's Different

In the past week, we've seen 10yr yields rise up and over 3.06%, flirt with 3.10%+ and come back down.  This has happened only one other time since rates set all-time lows in 2012 and 2016, and that was in May of this year.  Granted, rates drifted just a bit higher in May, but the patterns are similar.

If we line up today with the corresponding day in May, tomorrow is a huge rally for bonds.  But this time around, things are different.  While that won't necessarily mean anything tremendously bad or good, it does mean that past precedent isn't actually suggesting the big rally.  

Reason being: the big rally back in May was almost entirely due to the Italian political drama.  In terms of similarities, in both cases, we've had an overabundance of traders betting against bonds.  So IF bonds can find a reason to make those traders panic (essentially, yields would have to get low enough to force those traders to cover their short positions), we could see some nice momentum in the coming days. 

The other side of the coin is that without a big, obvious motivation for the requisite gains (like the Italian drama in May), we could simply be seeing rates catching their breath before going where they were trying to go back in early May.