MBS Live Morning: Europe Hits Bonds Hard, But Sideways, Volatile Range Remains Intact
MBS Live Morning: Europe Hits Bonds Hard, But Sideways, Volatile Range Remains Intact
Abstract
As rates made their way lower in the month of May, our ongoing thesis was that gains would be limited by the fact that a true rally required many months of decent inflation data. At the very least, that is the decision that the bond market is wrestling with. Long-term ceiling calls can't really be made on days when 10yr yields hit that ceiling. Even if rates do manage to rise a bit, it's still the inflation data that determines the Fed policy stance which, in turn, determines the trend. The more we zoom out and consider bigger pictures, the more obvious it becomes that 2022 has quite simply been the year of Fed tightening. The more reason they've had to signal tightening, the worse things have gotten for stocks and bonds. If we use inflation-adjusted Treasury yields, we can factor out one key worry for bonds, thus better isolating the Fed's bond-buying impact.