As many of you are likely tired of hearing, bonds have been locked in an increasingly narrow trading range for weeks.  The bounces at the boundaries have been almost perfectly well behaved.  In other words, since setting the lines for the first time, we haven't had to adjust them very much in order to contain a few of the more volatile days.

This process of adjustment is something we expect to have to do when a consolidation range will run out of room before the time when fundamental events stand a better chance of actually informing a true break away from the range.  This time around, we're looking to mid-March as the first logical candidate for a bigger move, even if it might not be the market's "final answer" for 2019.  

Given that mid-March is weeks away, we need to think about what might happen between now and then considering yields are only ever 1 day away from a bigger breakout.  In fact, the weakness seen so far this morning is the most threatening reason we've seen so far to ask such questions.

As the chart suggests, the break above the consolidation line is one thing, but the break above various horizontal ceilings would be bigger deals.  Specifically 2.75% is the first significant pivot point overhead.  This has been listed as the nearest/lowest overhead ceiling on the MBS Huddle for several weeks now.  Point being: today's weakness may speak to increased odds of short-term weakness, but it doesn't connote much additional weakness unless we see that break above 2.75%.  Even then, because today is the end of the month, there's some question as to whether the tone will change tomorrow (due to potential month-end imbalances causing excess weakness over the past 2 days).