Heading into the last hour of trading, MBS have undone the past three days of gains. Such a statement is a bit more palatable when the MBS hit their best levels in almost a year during those three days. Even so, it did result in some negative reprice pressure this afternoon. After being up a quarter of a point this morning, Fannie 3.5s are currently down 5 ticks at 102-04. 10yr yields are up almost 3bps at 2.546
As noted in the a few of the alerts today on MBS Live, the selling was fairly precipitous and in line with a thinly traded bond market being pushed around by bigger tradeflows related to corporate debt hedging and the resulting technical snowball. That's less confusing than it sounds.
All this means is that firms issuing large amounts of corporate debt can hedge some of their risk during that process by taking a short position in Treasuries (aka "selling"). In a market that might otherwise be fairly quiet, these bigger instances of selling can cause a bit of a snowball effect as other traders, who may be taking a majority of their cues simply from trading levels on days like today, can only see that some big trades are coming in suggesting higher rates.
If those traders were positioned for lower rates and needing to protect against a move higher, they could quickly be forced to sell if rates rose enough during the day. The "snowball" aspect comes in because that selling in turn raises rates even more, which increases the odds that yet another trader will now have hit their 'stop loss' level and also be forced to sell, perpetuating the cycle.
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