The market was doing just fine until the headlines broke the minutes of last month’s FOMC meeting (Fed Open Market Committee). The “Street” didn’t take kindly to comments regarding treasury asset sales, consideration of a .25 bps hike in the Discount Rate, and a general hawkish tone once they can determine that a recovery is “self sustaining”.
If we can break through resistance at 117-31, I think we have a nice chance to climb higher (better rates) but if we see a close down around that 117-13 level, I think you will see us trading down to that 50% level at 116-295.
Volatility has jumped as sellers press the market lower. Could be hedging for tomorrow’s 30 year bond auction or just a distribution trade for the new issue 10’s but nonetheless, prices are worsening.
Nice day for note futures and mortgage pricing. That of course is if you are a bond bull. Short covering on better than average volume ruled the day with many large sized players buying cash and futures (treasuries).
The news rallied European bonds and has given a lift to treasuries and MBS, pushing the 10 year note above the 21 day moving average. If we can hold these levels, the chart will turn to neutral from bearish and should work its way into better mortgage pricing.
What a difference a long weekend makes as the majority of sellers rode off into the sunset and have not returned to rule the day as they did on Friday. Selling late last week eliminated some bullish signals off our current trend that had been established earlier this month. The drop did however find some support at the 21-day moving average at 118-055, which is also where an up-sloping trend line off the August/September lows lies. The reaction to that area suggests that selling momentum is unlikely to immediately build on the shift away from the bullish camp. Much of Friday's increase in yields was associated with perceptions of growing economic strength and possible impacts on inflation.
