| | | | Introduction | U.S. risk assets slipped into the January close, while the long end stayed sensitive to mortgage hedging. When rate moves change MBS duration, servicers and mortgage REITs can add or unwind Treasury and swap hedges—creating flow-driven momentum that is only loosely tied to fresh macro news. Friday's tape fit that profile, with equities lower and long-end yields firming into the close. |
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| | | | | Market Movers | Stocks finished down on Friday, extending a choppy end-of-month stretch and keeping rates as the main cross-asset driver, according to a Reuters market wrap on the late-week close. The signal wasn't just "risk-off"—it was the mix of weaker equities and steady-to-higher long yields that tends to surface convexity hedging talk on rates desks. Key levels: | SPX: 6,939.03 (-0.43%) DJIA: 48,892.47 (-0.36%) IXIC: 23,461.82 (-0.94%) UST10Y: 4.26% UST30Y: 4.87%
| The long end matters here because mortgage hedges concentrate in 10-year and longer tenors, so marginal duration demand or supply can move prices quickly when liquidity thins. |
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| | | | | What's Next | The near-term setup is about triggers, not forecasts: if yields rise enough to slow refinancing, MBS durations extend and investors often hedge by selling duration—typically via UST futures or paying fixed in swaps—pushing yields higher in waves. If yields fall, the unwind can be just as fast, turning rallies into "chase" moves as hedges come off. Friday's reference points—shown in the Fed's H.15 rate table for the latest business day—leave markets close to levels where small moves can flip hedging direction and widen intraday ranges. | That feedback loop has moderated over decades, but it still shows up when volatility rises and positioning is one-sided, as described in a Reuters note on convexity risk and duration hedging behavior. |
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