Yesterday

- Week-long rally levels off, but gently. Still inside Wednesday's range

- Data deserves at least some credit as Jobless Claims beat big (305k vs 325k forecast)

- MBS closed at their 2nd best levels in 3 months.  Only Wednesday was higher.

- Treasuries opened weaker and stayed flat.  Supportive ceiling at 2.66

- Mortgage rates held flat

Today

- Focus is on making it to the weekend with minimal drama.

- Incomes/Outlays is mid-tier in terms of movement potential

- Consumer Sentiment is a "Final Revision," which tends not to move as much

- NFP coming up next week; Month/Quarter-end on Monday

Strategy

Last week's FOMC statement and all that's followed have acted the part of Occam's Razor in reducing the ifs and thens of bond market movement to pure deductive logic.  What does that mean?  In short, the Fed made things rather uncomplicated by foregoing a reduction in bond buying.  Whereas before, we might wonder what the heck they were doing with a seemingly overdeveloped need to taper, we now have evidence that there's a certain high water mark for the economy before they'll taper.  

In assessing whether the economy is over or under said water mark, we have no other choice but to look at economic data.  Stronger data = weaker bond markets.  Something near 3.0% in 10yr yields aligned with confirmed tapering.  Something around 2.47 aligns with an indefinite delay.  Anything in between means that we're still on guard for tapering and will raise and lower that guard accordingly based on key economic data.

The most key of that data is the jobs report 1 week from today.  Markets know it's coming and will consequently be more hesitant to make big changes.  Month and quarter-end trading considerations on Monday may also be acting to keep positions in a relatively narrow range.  The most disconcerting thing about the past week is how it's made so much sense.  If that changes before next week's NFP, we'll chuck Occam's razor and let nature take it's course.

Charts

Moderate weakness has felt like a possibility since Wednesday.  We saw it yesterday, but it stayed very well contained.  Based on the chart below and of course, the fact that we just bounced after 11 days of improvement, we could see more weakness between here and NFP.  The chart contains Bollinger Bands (white lines). as well as a flat line (yellow) at 2.75, which has been an important ceiling when approached from below, and finally the teal line which is the 5yr moving average we've charted on several occasions which is similar in function to 2.75, but also has acted as a floor when approached from above.

Pay attention to the white lines first.  One way to identify a signal with Bollinger bands is to observe a break of an outer line followed by a move back toward the center of the range and then a bounce back to the outer line.  If the charted security (in this case 10yr yields) does NOT break through the outer line on that repeat visit, you have the makings of a potential reversal.  If yields then move below where they moved on the first bounce lower, the signal is confirmed.  This happened on FOMC day.

But even though the break was only .004%, yields broke below the lower band on the same day.  At that point they set up another potential reversal signal by failing to break the lower band again on the return.  Granted, this is a fairly weak signal compared to the first one, but even without it, it would make sense to stay on guard for weakness ahead of NFP.  The 3 potential support lines (pointed out with dotted teal caption) are quite useful in gauging the severity of any potential weakness.  Breaking above the white line (which is the center Bollinger Band, and also a 21 day moving average) would be a sort of "final straw" if that happens.

Consumer Sentiment: