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MBS RECAP: Fine-Tuning Correction Ahead of Fine-Tuning Rate Cut

Posted To: MBS Commentary

Today saw the narrowest trading range of any day so far this month and by far the calmest day since the big September selling spree began. Drama came in the form of an uncommon and esoteric development in short-term funding markets, which essentially and unexpectedly ran out of liquid cash . This forced the short-term lending rate quickly higher (something that was already in progress yesterday and that got worse today). It's not that firms weren't on solid financial footing, just that they've been forced to buy a giant boatload of Treasuries this year (primary dealers have to submit bids at auction). They can temporarily use those Treasuries as collateral to get the short-term cash they need, but the lenders in that system were so busy that they raised rates as a form of pipeline...(read more)