Positional Pressure Preventing Recovery Rally

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November Philly Fed data just flashed and it was not bond market friendly. Immediately following the release 10yr yields shot up to 2.943% and "rate sheet influential" MBS coupon prices touched new intraday lows.

Here is the Reuters Quick Recap...

10:00 18Nov10 RTRS-PHILADELPHIA FED BUSINESS CONDITIONS NOVEMBER 22.5 VS OCT 1.0
10:00 18Nov10 RTRS-PHILADELPHIA FED BUSINESS CONDITIONS NOV 22.5 VS OCT 1.0
10:00 18Nov10 RTRS-PHILADELPHIA FED NEW ORDERS INDEX NOV 10.4 VS OCT -5.0
10:00 18Nov10 RTRS-PHILADELPHIA FED PRICES PAID INDEX NOV 34.0 VS OCT 31.5
10:00 18Nov10 RTRS-PHILADELPHIA FED EMPLOYMENT INDEX NOV 13.3 VS OCT 2.4
10:00 18Nov10 RTRS-PHILADELPHIA FED SIX-MONTH BUSINESS CONDITIONS NOV 49.0 VS OCT 41.0
10:00 18Nov10 RTRS-PHILADELPHIA FED SIX-MONTH CAPITAL EXPENDITURES OUTLOOK NOV 20.2 VS OCT 21.4

10:00 18Nov10 RTRS-TABLE-Phila. Fed business conditions index 22.5 in Nov
10:02 18Nov10 RTRS-PHILADELPHIA FED BUSINESS CONDITIONS INDEX AT HIGHEST SINCE DEC 2009
10:03 18Nov10 RTRS-RPT - PHILADELPHIA FED BUSINESS CONDITIONS INDEX AT HIGHEST SINCE MATCHING 22.5 IN DEC 2009

5s are -13/32 at 98-17. 10s are -20/32 at 97-05 yielding 2.956%. The 2s/10s yield curve is 4bps steeper at 244wide. The Jnauary FNCL 4.0 is currently -12/32 at 100-29. These are intraday TSY yield highs and MBS price lows..,not the best timing for rate sheets which are currently being created.

We've been talking a lot about bearish technical biases in the bond market lately.  Besides needing to overcome that rally resistance we've also been up against positional pressures as well, specifically in the options market where traders have pushed   prices higher and higher (implied vol) since the QEII cleansing process began last Friday.  Unfortunately those positions are bearish (puts) and they are  exerting a great deal of originator unfriendly pressure on our benchmark guidance givers (led by futures). This means 10s could rise as far as 3.00% before we see a recovery rally. The sooner the better because TY options contracts expire next Friday, we don't want this to go on until then. This would be the final phase of the "QEII cleansing process".  BEWARE

Hell it's in futures too...

Remember what we said about "buy the rumor, sell the news"...check out how positions swung last week in 10yr TSY futures. We'll see similar stats this Friday when the COT report prints.