MBS Day Ahead: What’s All This Then?!

MBS Day Ahead: What’s All This Then?!

Granted, the headline of today’s commentary will be lost on those who aren’t reasonably well-versed in Monty Python, but it was worth the risk to entertain the other 3 of you.  The important part is that the phrase can be traced back to “something British” because much of the market movement of the past 2 days falls into the same category.

Something British, you say?!  That’s out of left field, right?  Yes indeed.  It’s enough to make us ask “what’s all this then?!” (See, it was a pretty good title if you got the allusion).

Yesterday’s British shocker was a super hawkish statement from the Bank of England.  While they’re not on par with the ECB, Fed, or BOJ, they do round out the “big 4” in terms of central banks on Planet Earth.  There’s also a certain intangible gravity surrounding all things British when it comes to financial markets.  Before there was New York City, there was London.  It’s legacy has continued to earn British goings-on an outsized impact on global financial markets.  To its credit big decisions and big trades are still made there and they continue to move markets.  If you need fresh evidence, look no further than Brexit bringing about a surprising run to all-time low yields in US 10yr Treasuries.

By comparison, the effect on US bond markets has been minimal recently, but it’s been enough to keep yields from bouncing back more convincingly–especially after last night’s headlines of a new North Korean missile launch.  The following chart sets the scaling of the 4  lines based on trading through Wednesday.  This allows us to see relative performances over the past 2 days.  It’s fairly clear which line is not like the others.

This isn’t a major theme for US bond markets, nor is it likely to be an ongoing theme.  But here at the end of this week, it’s provided enough upward pressure to keep us sideways.