A common financial market quip is that the "trend is your friend." We like to add the addendum: "until it's not anymore." All we can know for sure is that bonds have shifted from range-bound to trending lower in yield over the past 3-4 days and today was just another confirmation of that shift. What we can't know is when the next show of resistance will happen and whether that will merely be a speed bump before additional gains, or a sign to circle the wagons and get sideways again. Data wasn't necessarily a huge factor in today's improvement although it didn't hurt. Bonds have an underlying vigor for other reasons, as evidenced by a solid 7yr Treasury auction today, despite yields being at the lowest levels in more than a month. Today's video discusses some possible reasons for that.
Bonds have moved just a hair weaker in response with MBS back to unchanged after being up 2 ticks (.06) and 10yr back to unchanged after being down just over 1bp at 4.283.
09:16 AM
Quick reversal back into positive territory. MBS up 4 ticks (.125) and 10yr down 2.4bps at 4.265
12:32 PM
Best levels of the day ahead of 7yr auction. MBS up 7 ticks (.22) and 10yr down 2.4bps at 4.265
03:21 PM
Best levels of the day with MBS up 9 ticks (.28) and 10yr yields down 3.6bps at 4.252
Lock / Float Considerations
Bonds have shifted from range-bound to trending lower in yield this week. Data is only partly able to explain the shift. The rest requires things like friendlier Fed comments and even regulatory changes that allow banks to hold more Treasuries. Even so, we suspect bonds are pricing in slightly weaker economic data ahead--something that will be very relevant next week given the typical early-month big ticket econ data (in condensed format due to the holiday). The longer the winning streak, the higher the odds of a bounce, but data will determine whether the bounce is a speed bump or intermediate turning point. CPI in 2 weeks is critically important as well.
