MBS Live Day Ahead: Bonds Not Afraid of More Weakness

By: Matthew Graham

Overnight weakness in bonds sets us up to test some more serious boundaries today.  As seen in the chart below (the same chart we've been watching for the last few weeks), yields have now risen to the bleeding edge of the consolidation range (upper yellow line).  As always, breaking through would suggest a bit of extra momentum. 

The exception to that general truth occurs when the higher momentum begins BEFORE yields actually break out of a range.  That could be what we're seeing right now due to the timing of seasonal trading patterns.  September often changes the summertime tone, and this time around, it's been decidedly bad for bonds.

My sense is that the market is waiting for its fears to be confirmed or rejected with the week's remaining data/events.  If CPI, the ECB announcement, and Retail Sales all suggest more selling, we could find ourselves back in line with long-term highs much quicker than we'd like.

That data is still 2 days off, so in the meantime, we're only witnessing anxiety about something that may or may not happen.  Let's hope it doesn't happen!