The bond market is starting the day fairly flat.  Each of the past 4 trading days has seen yields end lower than they began.  And over the past two weeks, yields have fallen on 8 out of 10 days.  Sounds pretty good, right?  But the strength is actually a reason to be cautious heading into this week. 

All of that strength was made possible by an even bigger dose of weakness at the beginning of the month.  In other words, it merely returns us to the recent range, and even then, not to the lower levels of the recent range.  In fact, one of the only discernible trends we can pick out of the 10yr chart is the line pointing to higher lows for rates.

That uptrend is the baseline.  The incumbent.  The burden of proof is on those making a case for lower rates.  Rarely has the outlook been more straightforward.  Here's why:

Rates fell faster than they ever have in response to coronavirus.  Unless coronavirus impacts get bad enough to block further progress in the reopening of the economy, rates' most logical move is "up"--even if only at a snail's pace.  The biggest risk or counterpoint to this assertion is how painfully obvious it is.  And I don't just say that to be cute or cover my ass from an analytical standpoint.  It's a real phenomenon in markets (i.e. when something is too obvious, we often see the opposite market movement simply because traders can't make money if they're all on the same side of a position).

Another counterpoint is the direction of the trend in MBS.  Specifically, the mortgage market is better described as being flat during this same time frame.  Here's a chart of 2.0 UMBS coupons that illustrate that point.

While this says good things about where we HAVE been, MBS won't necessarily be able to continue this outperformance.  Treasuries have had a lot on their minds recently between heavy supply increases and the ill effects of corporate bond issuance.  Also, MBS had some catching up to do after underperforming Treasuries earlier in the coronavirus saga.

Bottom line: rates are low.  Unless coronavirus wins, rates should continue to gradually move higher, but not in a straight line, and not at a blistering pace by any means.  Still, don't be surprised when there's more red than green on the charts.

As for the day ahead, the day's only scheduled data is Existing Home Sales at 10am ET.  Economists expect it to decline by a more modest 3.0% this time versus the -17.8% reported last month.  The recently strong correlation between stocks and bonds looks to be taking the morning off, so it's as yet unclear where today's inspiration will come from, if it comes at all.