In short, tonight is all about the charts.
Just like our recent discussion on "History Repeating Itself," (read it if you haven't! It's pretty interesting) we'll again focus on the 10yr note as opposed to MBS for the same reasons we've already laid out:
"We'll be focusing exclusively on the 10yr Treasury note tonight due to its ideal role as a benchmark of the general "bond market." While it's true that loan pricing is derived from MBS, our goal tonight is to examine long-term, big-picture movements."
One can't help but notice that the highest yield levels of 2007 through present day lie roughly along the same line. A few hours and days go by staring at that chart with that line on it and other lines start to emerge (to my eye anyway), namely a perfectly parallel line that, with the exception of the initial panicked flight-to-safety in 2008 and the repeat performance in 2010, contains every last bit of trading since the crisis. It looks like this:
(* NOTE: Regarding "every last bit of trading," yes we realize that the yellow line protrudes past the teal lines at times, but it does not do so in a statistically significant way, 10yr yields never confirmed any other long term trends int he past 4 years except for those exceptional time periods already mentioned. )
Given this chart, "epic technical underpinnings" come to light. This is as far as 10's have historically gone without being in the throws of a frantic directional flight-to-quality (AQ would call it convexity craze or something else we don't totally understand).
This is one of those times where technical analysis really is saying something very clear about the future: we're either in for an unfriendly bounce, or we're looking at the possibility of rates going much lower. Please note, however, the middle of 2010 for instance, the last time we went much lower in yield. There was plenty of "bouncing" and choppiness both before and after the breakout of the trend-line.
Plain and Simple: The revisiting of a long term technical level coincides with several other uncommon market dynamics, including the end of QE2, combining to create a perfect storm where rates are "on the ledge, poised for directional volatility.