Meant to post yesterday.
25 billion in 10 year notes will be the focus for today as the auction deadline is less than one hour away. No news but plenty of Fed Governors are speaking with traders looking for any clues as to what they have up their sleeve. Lockhart, Yellen, Rosengren, Tarullo, and our very our Dallas Fed governor Fisher are all on the scrambled egg/rubber chicken circuit. For the most part, the day has been quiet with stocks hanging around unchanged and the 10 year note up 6/32’s (yield 3.46%). As far as the auction is concerned, street talk has it that dealers are expecting a “fair” retail showing but not one that will blow the doors off. Somewhat of a “let’s see what the other guy does first” type of attitude.
The technical trades supports a cautious approach as the 10 year chart has traded back to the October highs and then backed off. The daily chart has formed a “reverse head and shoulders” pattern with today’s trade touching the neck line (October high). From a traders perspective, this is a good place to sell, given the resistance is clear and will be difficult to take out. The flip side would be if we can trade below 3.42%, especially on a closing basis. That would blow through that neckline and project a run to the old highs set last September (yield of 3.12%). If this happens, gains on the 10 year would be about 1 ½ points and improve mortgage pricing.
Today’s auction will go a long way in determining our next direction.