Little if anything could change the assumption that in the longest of timescales, yields will gradually trend upward from 2009. 2010 is almost certain to be an extension/confirmation of that. And as some of the longer term charts will show, even this recent strength in bonds hasn't violated that sentiment. But less certain is whether or not bonds will see an unexpected amount of strength in a more medium/near term.
Bottom line: today helps confirm the recent uptick in BULLISH momentum for bonds. And until 3.6 is broken in the 10yr, technical trends indicates we're perhaps just as likely to see tests in the 3.3's, maybe even 3.2's.
Kick things off with the stock rally's long term structure at risk for a 2nd time this month.
Remember that "slope of recovery" refers to the long, gradual cheapening of bonds as the lingering impacts of the crisis/recession are slowly unwound. This slope appears across all markets..
Zooming in now to our next set of charts on a shorter time scale
I recommend reading Vic's Post on Mortgage Rate Watch: Mortgage Rates End Week at New 2010 Lows
Here is an excerpt:
It is very tempting to advise floating in this situation. Mortgage rates are literally at their best levels of the year. Consumer borrowing costs really are at the mercy of stocks right now. If investor sentiment on the global economic environment really has soured and stocks move continue to move lower, mortgage rates would fall a few more basis points but lenders would be slow to pass along improvements. On the other hand, if the recent downturn in stocks is just another "break", similar to what we've seen several times over the past 12 months, and stocks end up recovering and extending their rally, then the flight to safety in Treasuries that is preventing mortgage rates from rising will be reversed and consumer borrowing costs will go up as investor funds are reallocated to higher yielding assets.
I must remind: mortgage rates always rise faster than they fall! With that in mind, it seems like it is going to take another major headline news event to spook stocks enough to allow lenders to offer 4.625% mortgage rates on fixed rate conventional loans. If you think this is highly likely, then you should play the market and see if the "contagion" spreads around the financial markets a little more because it is possible that your mortgage rates could fall a few more basis points. Me personally, I think it's a gamble. I am still advising my clients to take the aggressive pricing while its being offered.