MBS Day Ahead: For Now, It's Rally Time

The bond market specializes in making bets about future economic realities even as the stock market reflects shorter-term performance of the biggest companies. "Shorter-term" in this context means a heavy weight given to present day stats and an outlook that extends not more than a year or two into the future. Bonds, on the other hand, have an outlook that lines up precisely with their stated duration. For example, the 10yr Treasury note is accounting for everything it can reasonably foresee up to 10 years from now. Sure, there is also more weight given to more immediate concerns, but even then, Treasuries tend to look farther out than stocks. They also tend to benefit from the hedging of economic bets even as stocks remain on solid footing. The hedging of bets is an especially good...(read more)

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