Bond markets had their first set-back yesterday in the post-NFP rally.  While that rally only lasted 2 short days, it covered as much ground as any 2 days since the pervasive weakness began in May 2013.  We're left to wonder if the Fed will approach their policy meeting at the end of the month any differently as a result.

While Fed speakers have been clear in saying that one awful jobs report doesn't alter the course of monetary policy, bond markets have almost no other reason to rally as much as they have, though they have had reasons to rally somewhat.

One of those reasons has been the shift (if you can call it that) away from stocks and back toward bonds so far in 2014.  It's been almost imperceptible for the most part, but gives itself away in brief glimpses. The following chart shows a good amount of correlated movement over he past 2 days.

As the positivity began taking hold (even before NFP last week) the technical landscape also supported a corrective move.  This wasn't really the sort of thing anyone should put much stock in before NFP however, because volumes were non-existent and NFP was set to send trading levels in either direction anyway. 

That said, once NFP was clearly in favor of a bond rally, it made the technicals sing.  What had been a fledgling hint of a reversal/rally cue in studies like stochastics and MACD, quickly became full-fledged.  The only problem now is that they've quickly matured and already show early signs of reversing in the other direction.

This time around, a technical reversal back toward higher rates may not be as scary as it was at any other point in the epic sell-off of 2013 for two key reasons.  First, rates are pretty damn high already.  It's one thing to be looking at this sort of technical reversal pattern in late October (the last time stochastics were overbought) when 10yr yields were at 2.47, the single most epic concrete floor of 2013.  It's another thing to be seeing similar patterns emerge at 2.82.

The other soothing factor is the NFP numbers themselves.  Markets will have a hard time getting too bearish until NFP's other shoe drops.  That shoe is the FOMC Statement at the end of the month combined with the next NFP numbers.  These are very important as they have a chance to revise the most recent reading or to simply make it look like an outlier.  Of course the best case scenario for rates would be if they're similarly weak.

On balance, it suggests "sideways range-finding" rather than "directional movement."  As I noted yesterday, the sideways ranges currently suggested can be fairly wide, so it might make it seem like directional movement in the interim.  Fannie 4.0s are actually a good technical candidate to demonstrate this (MBS usually fail when it comes to technical analysis because of roll-related distortions, but this chart works).  Quite simply, this is a break from the prevailing downtrend into the New Year, clearly defined bounces at a central pivot since then with the post-breakout highs and lows being the default range boundaries for now.

Keep in mind, this is the very first chance we've had to assess this range, so if something comes along and crushes it on either side, we'll have to reassess.  So far, so good though.

On a final note, there's some data today.  It's in the calendar below.  It's inconsequential.  Tradeflows, technicals, and equities can easily trump that stuff, even though PPI is a historically relevant report.