After enjoying a nice rally since July 10th, bond markets are taking the 2 days leading up to tomorrow's Fed announcement to book some profits and get back to neutral territory.  Unfortunately, getting back to neutral means "selling bonds" if the prevailing trend had been positive.

As discussed in this primer on MBS Live, there are long and short positions.  Long positions mean "buying" in the hope that bond prices will rise and yields will fall.  A short position means selling in the hope that yields will rise.

Both long and short positions signify "open interest." In other words, both positions count as "bets" that are open until they're closed.  If you are long Treasuries and rates are moving higher, your position is costing you more and more every day.  Same story if you are short and rates are moving lower.  

Granted, this verbiage isn't the most natural way to talk about traders betting on rate movement, so here's the important point: when bond traders who are betting on lower rates ("longs") need to book profits or get neutral ahead of a big event, they SELL bonds.  When bond traders who are betting on higher rates ("shorts") need to book profits or get neutral ahead of a big event, they BUY bonds.

Since last week, the most widely-followed survey on bond trader positions indicate that traders have been coming off the proverbial fence.  There are more longs AND more shorts.  With yesterday being inconsequentially weaker (higher rates), more of those long positions (bets on lower rates) were forced to cover (SELL).  Additional overnight weakness provided the same motivation.  If rates had happened to move inconsequentially lower yesterday, and if European data and stocks had been weaker this morning, we very well could be seeing the opposite snowball move (into STRONGER territory).  

In other words, the current weakness is sort of a byproduct of more positional commitment among traders combined with the week's first directional movement.  Dominoes were ready to fall either way.

From a technical perspective, we're at risk for a bounce here, as 10yr yields have failed to break below the 2.22% pivot point.  Short-term momentum is negative.  Volume is increasing into the selling, and the recent downtrend in rates (yellow lines) is already being tested.  Longer-term momentum is still intact, but failing to hold a break below that 50% mid-point on the lower section of the chart can sometimes result in an early reversal of slow stochastics (the name of that longer-term momentum technical study).  

Not pictured in the chart are key technical levels overhead that could bring buyers back into the game.  These include 2.305%, 2.36%, and 2.40%.