This is a great note from my friend Adam Quinones, head of MBS/ABS products at Thomson Reuters.
My 17-year old niece will be shadowing me for the next four weeks. Today I forced her to read the first three chapters of my “Economics of Money and Banking” textbook and spent an hour explaining bond market basics. We talked yield curves, the price/yield relationship and even touched on spreads. Then I let her loose inside Eikon and requested a recap of what she saw. This is the end product….
“Bond prices went down and yields went up today because Bernanke basically said that he doesn’t really know what is going to happen and how are people supposed to trust him when he doesn’t even know what the Federal Reserve is going to do. Rates went up on this uncertain news. Is that normal? Whatever. The 3.50 MBS coupons are only down 8/32 while the 3.00s are down 11. The chart doesn’t look much different than it did yesterday.”
HA. Awesome. Couldn’t have said it any better. Especially her interpretation of Bernanke. Sometimes keeping it simple provides the best perspective. Resist the urge to overanalyze. It’s summer. Flows are thin. Liquidity comes and goes but mostly goes…