About half a facemelter in both MBS and tsy's today as MBS got half a point and tsy's another 4-6 ticks beyond that. As AQ pointed out in the previous post, bonds underwent periods of accumulation, consolidation and a very friendly level of distribution that brought much less pain than normal profit-taking corrections on comparable rally days. The net result on the 10yr yield is just under 3.4 after moving exactly from yesterday's high yield marks to yesterday's low yield marks. The day was so technically traded in fact that we even saw traders and analysts who otherwise stay away from technical discussions make mention of it today. Although the tech levels on the 10yr are probably readily apparent from the 2 day perspective pictured and discussed above, MBS's own technical foray might not be as apparent without taking a look at a longer term chart?
Did you see it? The juxtaposition of trend channels around 23, 50, and 62% implied retracement levels based on 0/100 levels on the highs and lows of the last 4 months? How about the quasi-triangular consolidation in tsy yields as the bond market once again seeks out directional guidance against the backdrop of an ever rallying stock market? What do you mean "NO!??!?"
How about now?
Long story short, today was a another one of those seemingly great rally days, and it's YET ANOTHER day where we'll tell you that no trends have YET been broken. Let the white line at 3.49 (ish) on the 10yr tsy show (and more precisely the red triangle) as well as the yellow and blue lines on the MBS chart (23 and 50 percent retracements approximately) that it's all about the chopilicious slap chopitty chopitility, and ALWAYS INSIDE THE RANGE! Rally! Sell-off! Sideways! Big move! Little move! ALL WITHIN THE RANGE. Always within the range. <eyes glaze over in that catatonic cult-member sorta way...> "The trend is good... The trend is our friend..."
In other words, when does a half point rally not mean anything positive about the bond market? Today. as well as the last 5 times it has happened in not even two months. The only rally that means anything is the one that BREAKS the range and sees the break hold for a few days. We're on the cusp of a breakout right now with prices at 4 months highs (truth be told, we're actually one tick over that, but as you may remember, we want to see a few more ticks of "convincing" before considering a trend broken). Will we push higher tomorrow? That's not so much the question as much as "if we do push higher tomorrow, will we hold that into next week?" Right now I'm seeing that as the less likely of the two scenarios, but I'd be thrilled to be wrong. As far as your pipelines are concerned, using the extremes of the range as respective lock and float triggers is something that would have served you very well over the last few months and something that should continue to serve you well until the direction-seeking ceases. If we are indeed going to push higher into the next trend, it might feel like you lose a bit by locking, but your big picture should be more profitable overall.
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