The Day Ahead: How Bad Could It Get Before It Gets Less Bad Again?

We had hoped to see 1.74% hold up as a supportive ceiling in 10yr yields during yesterday's session, but noted that the next major pivot would be around 1.80 in the event of a break higher.  And that's exactly where 10's ground out their PM hours. 

Every time this ongoing sell-off takes a turn for the worse, we look at the next pivot point and think or say something like "hopefully we'll see support there," all the while cognizant of the fact that these sorts of sell-offs can and do get much worse.  Case in point, take a look at this long term chart of 10yr Treasury futures. Note the core prevailing uptrend beginning in 2008 and the "pops" above the trend in late 2008 and 2010.  In both instances, when prices returned to the upper trendline of the core trend, it resulted in a brutal ride back down to the lower end of the trend. 

We include this chart purely to help us keep perspective on how quickly things can change even when it didn't seem likely that we'd see changes of such magnitude.  Granted, the late 2011/early 2012 market looks very different now than it did then, but the patterns are thematically similar.  Again, this isn't to say that "this will happen," but rather, simply to provide some small visual justification for the possibility that it COULD happen.  The recent selling trend is aggressive and at this point, we'll need a solid two days of ground-holding or improving before we're moving on to consider 2-4 weeks of choppy sideways action. 

Normally we'd say we're not paying any attention to economic data in the morning (as markets have been much more interested in trading technicals and trade-flows, but it is "survey week" for next month's NFP and thus Jobless Claims is potentially more interesting considering that it's the employment metrics that are at the core of the Fed's QE3 considerations.