MBS RECAP: Bond Rout Continues With No Help From Month-End

Posted To: MBS Commentary

There is month-end bond buying and then there is month-end “position-squaring.” These are 2 different things. Month-end bond-buying refers specifically to the phenomenon of money managers adjusting their holdings to match a specific bond market index. In general, there’s always a need to add to bond holdings because there’s always a certain amount that will be maturing in any given month. That’s why another name for month-end buying is “index extensions” (because average duration of any given set of bond holdings must be re-stretched or “extended” every month, lest the portfolio gradually pay itself down to nothing. Index extensions always bring in some bond buying near the end of the month. Position-squaring, on the other hand, can happen any time…(read more)

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