Last week we'd been discussing the impending drop (November Class A settlement, meaning December coupons become "front month" and/or "on the run" resulting in a sizeable time-value-of-MBS-money-related "drop") in the context of previously significant price levels. We suggested that with enough strength, we could be looking at maintaining a few layers of technical support starting with 100-28+. Not only did we maintain that level, but even manage to stay above 101-00 after the drop.
Treasuries, shown above, also had some fun with technical support after dropping past 3.49 on the day. That level, although tested several times, turned out to hold up well with the 10yr improving 5 ticks in price to a yield of 3.480. Meanwhile, the 2yr note was unchanged, thus indicating our first bit of yield curve flattening in what seems like ages. Recall that the 3.49 level in tsy's holds some long term significance and was discussed this morning as necessary support to prevent a breakout on the inverse head and shoulders...
As far as the 10yr tsy futures chart we discussed this AM, there was no breakout of the inverse head and shoulders today, but that's not to be expected until more of the auction results are behind us. Even so, we did move in the right direction and also held the downside boundary of the recent uptrend intact... Take a look...
You can see the downtrend in the form of the red line... The two uptrends in white and yellow (the latter the more aggressive) are conflicting signals and one must concede in the days to come. And it's in those days to come where these and most of the other technical indicators will take on greater meaning. This is not only because the auction cycle will be completed, but also because we can't really assign much technical significance to today's price action considering the abysmally low volume. A mere 528721 10yr contracts... Far less than half of Friday's marks and closer, in fact, to half the AVERAGE. Blech....
But that's what the rest of the week is here for! And you know what they say... If Monday is drawing to a close, the longest week begins with a single Tuesday... Here's Tuesday's Calendar...
- Fed's Lockhart at 915
- Fed's Yellen at 1000
- 4 week bill auctions at 1130
- 10yr tsy auction at 1pm (yep, that's the important data point of the day)
- Fed's Fisher at 730pm
So hopefully we maintain the positive auction results into this more important issuance... If that's the case we could see what we would have liked to see today: the same technical indications BUT THIS TIME, SUPPORTED BY VOLUME!