Treasuries Resist Further Improvements Despite Stock Sell-Off

By: Matthew Graham

It's a full blown sell-a-thon in stock markets at the moment with S&P's having now charged straight through Friday's lows now down around 25 points to 1233.  But even when they were 10 points higher earlier this morning, 10yr yr yields were essentially at the same levels they are right now--just over 2.00.  In fact, we're seeing a lot of resistance to the notion of taking 10's under that 2% level with ostensible culprits being the need to discount impending auction supply as well as a modicum of unknown from tomorrow's FOMC announcement.  Here's how the phenomenon looks on a chart:

Despite that reluctance, overall, Treasuries are simply favoring the mid-point of their recent range from 1.95 to 2.07.  As you can see by the location of the yellow diamond in the y-axis on the chart above, 10's are basically dead-center between the teal lines that indicate the range.  The red lines show the bullish trend that took shape at the beginning of the month and that any EU-Summit-related weakness was unable to break on Friday.

MBS aren't looking too much worse for the wear either.  In fact, after having generally encountered 102-00 or thereabouts as a rough ceiling in November, the same has been a rough floor in December.  Even the "post-roll" January 3.5's have held this supportive pivot through last week's Summit.  Prices seem to have been honing in on a technical level at 102-03, which has been prevalent in the past.

Back to stocks...  Despite the rather aggressive selling this morning, S&P's are still trending sideways overall, having NOT re-entered the downtrend, indicated by the downwardly sloped green line in the chart below.  With FOMC, auctions, and tons of data this week, this morning feels more like getting back to neutral as opposed to some super meaningful correction.  Still anyone's game.