Last Week

- Bond markets moderately weaker with Tuesday's ISM data

- Slow, steady recovery into Thursday PM

- Friday's NFP much stronger than expected; bonds tanked

- Weakest levels since late September

This Week

- 10yr defending sideways range boundary (1st chart below)

- Hoping/Waiting for negative momentum to shift (2nd chart below)

- Limited data calendar and Treasury Auctions

- Most data shows up Thursday and Friday

Strategy

The past two weeks have done all kinds of "bad stuff" to bond markets.  Not only did interest rates return to the gates of the outer gates of their previous paradise only to find them reinforced, they were also given yet another swift kick in the other direction.  This has happened three times now--June and July being the other two instances where 10yr yields have challenged 2.47 and been booted to 2.75+ (see the upper and lower lines on the first chart below).  The best case scenario would be that we've just seen the reinforcement of a range, but any other reading is negative.

It may be tough to determine whether or not we're seeing similar support (or a break thereof) in the current week as there's a noticeable lack of data and events.  Of the limited number of economic releases, none of them are top tier.  In addition, they're concentrated at the end of the week, leaving the focus on the Treasury Auction process during the first two days and technical considerations (what's a technical consideration?) in general.  All in all, the trend higher in rates is intact unless proven otherwise.  Keep in mind that MBS will open significantly lower today due to the roll.

Charts

Predominant post-June-FOMC range in 10yr yields (2.47-2.75)--being challenged again in overnight trading.

Various technical indicators for 10yr yields.  There are some opportunities to view this in a constructive light, but most are negative.  The silver lining is that negativity has been so negative that it suggests a correction of unknown proportion some time soon.

4-month moving average and recent inflection points for Fannie 3.5 MBS.  The upper line is a long term inflection point that we failed to break.  The lower line is a frequently-visited inflection point over the past 5 months, and is roughly in line with where prices would have ended the day on Friday after the roll.