MBS Live Day Ahead: Not Quite Back to Normal Trading

Bonds will be fully open today and tomorrow, but we're not quite back to what would be considered "normal trading" yet.  There is no significant data on tap today but volume should begin ramping back up as we are through the winter holidays.  This is sort of an in-between time (the next 48 hours) where there will still be some leftover holiday effects on liquidity (which can exaggerate any given move, for better or worse), but where we also may see a bias in one direction or the other due to "new year" trading themes (sort of a bigger, opposite version of "month-end trading."

Once the bigger-picture consolidation pattern begins to break down, we'll be able to talk about the next major theme/trend in bonds.  To be sure, the average trader is more concerned and convinced that yields are going to break higher out of this consolidation.  The biggest risk for them is that their stance is so popular (if all traders are making the same bet in the bond market, it's hard for them to all be profitable unless something like the Fed's past QE programs are in full swing).

MBS Live Winter Holiday Message (repeat):

The juxtaposition of Christmas and New Year holidays makes this time of year truly unique for financial markets.  Important data and events can still transpire and some traders may indeed try to make relatively bigger moves.  We've even seen instances of big-picture trading themes begin to take shape heading into a new year, but these are exceptions to the market's baseline goal.  Simply put: traders are people too.  The average trader would simply like markets to hold steady until the 2nd week of January when liquidity and volume return and trading conditions get back to a semblance of normal.  Between now and then, trading takes place on an 'as-needed' basis.  In other words, people will respond if something is rocking the boat, but most would prefer the boat not to be rockin'.

Due to illiquidity, if imbalances arise (i.e. a few big traders decide to buy/sell a bigger amount of bonds) it can move prices/yields much more than it otherwise would.

My baseline goal over the winter holidays is analogous to that of the average trader.  Unless something is rocking the boat, I won't be writing much by way of riveting analysis at this time of year. Rest assured, I will be here and I will continue monitoring markets like a hawk and sending out alerts as needed.  Even so, you should never rely solely on my written alerts.  I highly recommend you set up automated alerts HERE and refine them over time to suit your individual needs.  

In addition to less frequent commentary, I'll also be less tuned-in to the live chat channel on MBS Live.  If you have a question that goes unanswered, please feel 100% free to contact me directly.