Did you catch Bunning Grill Bernanke Last Week? Well Ben Is Back, to let YOU know, he can really shake 'em down. Fascinating stuff and as AQ so rightly points out, subtle hints for tomorrow.
Speaking of tomorrow, we can't help but approach it as another "crossroads" or yet-to-be-determined size.
A month or two back, I took part in one of those "where do you see the highs and lows in the 10yr for the rest of the year" surveys. I wasn't among the economist crowd on the Bloomberg or Reuters type surveys, but I was certainly in the company of some smart dudes. Long before today, and even before rates fell through 3.3, a majority of these traders saw the range through the end of the year between 3.62 and 3.20. Since the survey, those have been the exact limits of the trading range. Kinda makes you wonder what the smart guys know that never makes it to the common man....
Although my response on the low end was closer to the 3.27 technicals, I was in agreement with the 3.62 number, with 3.56-3.57 as a more mainstream limit to the range. And here we are today with 2 noticeable bounces at 3.62 support after coming up against 3.56 for the third time in as many months. In a vacuum of data and events through year-end, 3.62 holds. If bonds catch a break tomorrow, 3.56 is in fashion again. And in the worst case scenario that tomorrow's FOMC statement tanks bonds, perhaps we'll all have pie on our face with something north of 3.62.
But getting back to the point, for today at least, 3.62 is indeed the almost-overlooked technical level that has provided the proverbial branch that saves bond prices from falling to the bottom of some chasm of unknown cruelty. Almost acting with a sentience, yields moved out to 3.62 on the only day they could without fully confirming the breakout. What I mean by that is that if today's volume and movement came on any other day, it would be a more conclusive suggestion of a breakout, but because tomorrow FOMC announcement follows, 3.62 can be thought of much like the many other "on the fence" levels that volatile days have ended with over the course of the range trade. Only this time, there's no immediate evidence of additional support layers to cushion a potential fall onto the unfriendly side.
Reinforcing the notion of a revisit to a "fence-bound" position ahead of important data, it's interesting that both MBS and tsy's ended the day exactly where they were trading before this AM's data.
Specifically for MBS, this also happens to be one of the most important pivot points this year--essentially a hard-and-fast line of demarcation between summer weakness and Fall's rally out of that range. Who remembers the almost daily mention of 100-28+ as "the highest closing price of the summer?"
Getting little mention today, stocks were up to their same old sub-1110.00 antics after feigning a breakout at 1114 yesterday. Yawn... Everyone's waiting for something...
I'll conclude with a paragraph from a comment I just posted on the last blog:
"No one knows what tomorrow's FOMC statement will contain, and no one knows how friendly or unfriendly to any given market it would need to be to gauge the direction of that market with certainty. I do know that unless markets are EXPECTING some aggressive verbiage regarding the recovery and unwinding only for stocks to sell off and bonds to rally on a dispassionate statement, it would then have to be fairly cautionary, dismissive of inflation, and economically bearish for bonds to rally back in grand fashion against the currents we're facing here at year end. Take that for what it's worth, but as the next post says, we've had every reason to weight our lock/float allocations toward locking recently and although it's perfectly possible for bonds to rally, the risk of what happens if the don't should be enough to keep those allocations safer."