The Day Ahead: Data Remains Light, But Auction is Worth Tuning in For

Tuesday wasn't a good day to be MBS, at least not compared to Treasuries.  We began the session with less by way of overnight improvements, gained less into the morning rally, and gave back more into the afternoon sell-off.  Short shrift all the way around...  Better performances would require more liquidity in 3.0 coupons and it's hard to drum up liquidity and participation in 3.0's 2 days ahead of the roll.  Heck, it's hard to drum up liquidity there, period.

One thing that's not hard, apparently, is for the star of the family (10yr Treasuries) to march calmly and purposefully straight back down to the previous, long-term, range trade boundary at 1.83.

One thing that history should be showing you in the chart above is that visits to the low 1.8's, for the most part, have been short-lived ventures from firmer-footed base-camp around 1.90.  We didn't put a line in at 1.90, but hopefully you can see it in your mind's eye, and how the previous touches of 1.83 have been fewer and farther between whereas the core of the range seems to rest more appropriately on 1.90. 

History should also show you that breaks lower from current levels have been violent, short-lived affairs that only really happened when we were still trying to find the bottom early last Fall.  But we don't really think that the current epoch has too much in common with September of 2011.  1.8's are old hat to us now...  Just look how calmly we've walked right up to their front door!  The overall trajectory of the shot to 1.83 is very much like that seen from August to October, but this time fired more like a laser instead of a shotgun.  

We'll be honest... lasers scare us.  EVEN IF the economy is entering some sort of squishy period that allows for more low-rate range-trading, there would still need to be a lower and upper end of that range, and as soon as markets determine the lower end, it wouldn't be a big deal in the slightest to head back up to the supportive ceilings of that range to check things out.

Is this what we think WILL HAPPEN today?  Not even...  But it's something that could happen in the near future.  And that's really what's at stake with today's only piece of significant scheduled data.  The 10yr Note Auction at 1pm stands a chance to either help bond markets continue groping for lower resistance levels or to serve as some sort of pause for reflection (and at worst, a turning point).  Of course, we'd be remiss in accounting for possibilities this Spring if we didn't mention the distinct possibility that we remain "sideways and grindy" indefinitely.