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I don't know why this "No Bid" claim is getting so much traction. MBB, an ETF containing only MBS, dropped all the way from 98 to 97 on Friday.
by ProjectArcturis 4y ago
I don't know why this "No Bid" claim is getting so much traction. MBB, an ETF containing only MBS, dropped all the way from 98 to 97 on Friday.
- xeromal 4y agoWhat's the significance of 98 to 97 ?
- ProjectArcturis 4y ago$98 per share to $97 per share.
- browningstreet 4y agoThis reader is still hoping for an explanation of the significance.
- shubhamkrm 4y agoI assume the point the GP is making is that it's not at all significant.
- bjornsing 4y agoWell the OP says the retail rate went from 5.5% to 6% as a consequence. Not very significant either, right? Surprise comes from data that violates your expectations. I guess it’s mostly a matter of expectations here. Also, ETF buyers are probably less knowledgeable / professional / sophisticated than buyers of the underlying asset.
- ProjectArcturis 4y agoThe ETF has a redemption mechanism that keeps its trading price aligned with the underlying net asset value. Thus, the sophistication of the ETF buyers is irrelevant.
- bjornsing 4y agoGood point.
- mike_d 4y agoNothing. They just found a random ETF that owns MBS and quoted the stock price, while the original article is talking about the MBS market (which isn't part of the stock market). It's like inferring the health of the commercial real estate market in the bay area by quoting Google's share price.
- xeromal 4y agoThanks. Not really familiar with that ETF so I wasn't sure if that was a big change or a small change but really it's an irrelevant change to the conversation.
- ProjectArcturis 4y agoNo, he's super wrong. That ETF is a basket of MBS. It's traded on the stock exchange so people can trade MBS as a general concept, rather than buying and selling individual bonds. If there were truly a "no bid" situation, the price of existing MBS would crater, and the price of the ETF would crater.
- ProjectArcturis 4y agoTell me you don't understand finance without telling me you don't understand finance.
- djbusby 4y agoYea, it's NBD, this thing is off around 1% over the weekend. But check the futures now, it's all off 1% (or was last I looked). Maybe this is one of those little cracks before the dam? This (coming? ) recession might not give us a bang like 01 and 08 kinda did.
- 01100011 4y agoIf I understand things correctly, it's because the MBS buyers finally said that they believe inflation is going to be persistent and they require much higher returns. This opinion was unanimous. It came as a shock and indicates rates need to go higher, potentially much higher, in order for the market to continue to function. These higher rates, and the rate at which they're rising, could shock the housing market leading to ripples throughout the economy.
- mike_d 4y agoYou are looking at an ETF holding existing MBS, not the MBS market itself. Like if the Treasury issued a bunch of new t-bills and nobody showed up to the auction, that doesn't impact the repayment of existing t-bills. But it is still a really bad sign.
- deleted 4y ago[deleted]
- rocqua 4y agoETFs suffer less from bad liquidity in the underlying. There can be arguments that, in illiquid markets an ETF gives a 'more accurate' price than the market price. Where more accurate means 'better matches the opinion of all traders'.
- heartbreak 4y agoNo, this isn’t right either. MBS deals are still pricing.
- ProjectArcturis 4y agoThe price of existing MBS is, of course, affected by the auction of new MBS. If the Treasury issued a bunch of new T-bills and no one bought them, the price of existing T-bills would crater. And also the financial system would collapse, but that's a different story.
- rufusroflpunch 4y agoIt’s a sign the credit markets are starting to break. I think that is the only thing that could get the Fed to reverse course on tightening.