MBS RECAP: Did Someone Say "Absence of Volatility?"


Yesterday’s recap was titled “Surprising (or Not?) Absence of Volatility.”  Fool me once, shame on me.  Fool me twice… won’t be fooled again.

The UK election was billed as a big-ticket event for traders, but in hindsight, it’s clear that there were no unified trading themes corresponding to various outcomes, save perhaps for an outright upset for the Prime Minister’s seat.  Headlines convey the shocking surprise of a parliamentary shake-up, however.  So what’s up with that and why are bonds ending the day nearly unchanged?

Simply put, Theresa May wanted her party to have a parliamentary majority.  Pollsters thought she had a decent chance of getting that, but she didn’t.  This makes Brexit-related legislation tougher and slower.  Bonds thrive on fast/aggressive Brexit.  Hence, the election upset was leaned-on as a reason for this morning’s bond market weakness.  

That’s a possibility.  It’s also possible that we simply aren’t walking away from the current week with major political surprises on the domestic front.  Combine that with the fact that next week is an absolute zoo in terms of scheduled data and events and today’s closing levels offend absolutely no one.   Yes, we’re rising from the 2.15-2.17% gap and that’s a bit disconcerting, but it’s still anyone’s game next week.

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