MBS RECAP: Big Swing From Losses to Gains as Markets Digest (Then Dismiss) Ukraine Ceasefire


In terms of interesting, singular market-moving events, only one thing happened today.  It was at 4am that headlines came out suggesting a ceasefire between Ukraine and Russia was already a done deal.  Stocks rallied and bonds sold off instantly.

And that was the last notable headline and market reaction of the entire day for bonds!

Everything since then has merely been a slow, uneventful grind back in the other direction.  We can seek to understand that bounce back in several ways. Here are a few contenders:

– Markets don’t really care about geopolitics as much as it might seem.  Instead, such headlines are used as cover to facilitate trading goals.  The current goal may have been to book profits from bets on lower rates, or to simply exit trading positions ahead of 2 days of volatility

– Corporate debt issuance goes both ways.  When big firms issue debt, they can SELL Treasuries earlier on in the process, but end up BUYING them back later on.  Given the recent level of corporate bond issuance, it’s not unlikely that there were some of these buybacks going on.

– The ceasefire itself wasn’t actually that impressive beyond on the initial headline.  No additional reassuring news came out, and the only meaningful follow up was when Russia said they’re not part of a ceasefire because they’re not fighting with Ukraine (the implication being it’s the pro-Russia separatists who, of course, have nothing to do with Russia… of course).

Whatever the case, bond markets came roaring back in slow motion.  The bounce looks more exciting against a 2-day backdrop.  In a slightly broader context, we just barely made it back to last week’s worst levels.

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