MBS Day Ahead: Random Volatility Risks As Traders Tune Out
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It’s a good time to revisit the primer on illiquidity unless the term is 2nd nature for you (here it is). Illiquidity is definitely a factor today as traders have undoubtedly targeted it as a perfect candidate for a 3-5 day weekend due to the absence of any relevant events on today’s econ calendar (and limited events next Mon/Tue) combined with the time of year (i.e. last week before school starts, in many cases).
In a nutshell, illiquidity makes it easier for bonds to move, for better or worse. The fewer dollars being traded, the bigger the impact of each dollar. In this way, it only…
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