MBS RECAP: Not Complaining, But Wishing it Could be Something Else


Interest rates that have generally been rising for a any period of time can catch a break for many reasons.  Sometimes it’s Italian political drama (not that this is common, but it was a big deal in May 2018), and other times, it’s a old-fashioned stock sell-off.  This week it was the latter.

Time and again when big stock sell-offs help rates break a vicious cycle, we’ve seen a lot of resistance to the idea.  In other words, it takes a BIG drop in stocks to catch rates’ attention if rates’s attention has been excessively focused on moving higher.  That’s exactly how things went down this week.

Far be it from me to complain about lower rates.  Indeed, I’m not.  But with these lower rates come other challenges posed by massive stock losses.  If we could have our cake and eat it too, it would be nice to have stocks at least hold steady while rates move lower.  That likely isn’t in the cards any time soon–not in a world where the Fed is removing accommodation and the government is increasing Treasury issuance.

With that in mind, the next big announcement on Treasury borrowing changes is just over one week away.  Between now and then, stocks and bonds are at the mercy of the big week of economic data that typically graces the beginning of any given month.  The biggest ticket among these is next Friday’s NFP-related data, but even before then, there will be plenty of opportunity to see if stocks want to do anything else with the sell-off and if bonds want to keep cheering them on.

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