Bond prices were mixed yesterday as yields on the short end of the curve fell a touch while longer maturities saw their yields rise. We held our ground into the afternoon hours and kept the range trade alive. Overall, the bond market’s performance was not bad given the stronger performance in stocks, EU pledge to clean up the Greece situation, stronger-than-expected initial jobless claims data, and the weak long-bond auction.
Overnight, China announced an increase in its bank reserve requirements in an effort to drain liquidity, loan growth, and property appreciation. The move is having its most direct impact on commodity prices but has also pressured stocks a touch lower. In other world news, German Chancellor Merkel slowed the Greece rescue plan, leaving the path forward there uncertain. This morning, bond prices are higher and have had little reaction to this morning’s retail sales report. For January, retail sales were a touch better-than-expected with overall sales rising 0.5% while ex-auto and ex-auto & gas sales both rose 0.6%. December’s retail sales were revised slightly higher.
The rally today has taken prices to the 50% retracement of the preceding drop at 118-07. Hourly studies are endorsing the strength but trend studies still remain neutral. We have pushed through resistance at that 117-31 level and additional strength should drift up to 118-125 if the market has its legs. However, daily charts still lean bearish, making a major rally unlikely. We currently are trading 3.68 on the 10 yr (118-06). These are good levels so it’s probably not a bad idea to take advantage of the current mortgage rates. Without a major breakout developing, best to keep hand on trigger!
