MBS RECAP: Bonds Dragged Into Snowball Rally by Stocks (Not Turkey)
Posted To: MBS CommentaryHeadlines continue overstating the connection between US market movements and the financial drama in Turkey. Today was especially damaging to the case for correlation as Turkish Lira improved significantly even as US stocks and bond yields sank. The conventional wisdom has been arguing for the OPPOSITE relationship lately (i.e. weaker Lira pushes bond yields and stock prices lower). US markets weren’t too troubled by Turkey today. Rather, it was steep losses in Chinese stocks overnight that correlated most readily with declines in US stocks. The stock slump prompted a fair amount of bond buying demand. The trick for bonds was that traders were widely betting on rates moving higher post-Turkish-crisis. As such the unexpected buying demand set of a wave of short-covering resulting in a bit…(read more)Forward this article via email: Send a copy of this story to someone you know that may want to read it.