The Day Ahead: Employment Data, FOMC Minutes, Post-Cliff Range Trade

For bond markets, Thursday will offer an opportunity to confirm that the PRE-Fiscal-Cliff-Deal  range is also the POST-Fiscal-Cliff-Deal range.  For MBS, this won't be much of a challenge (barring a fairly ugly sell-off), and we've already seen two sessions of ridiculously awesome outperformance.  In other words, MBS have been a bit weaker this week, but not even remotely as weak as the popular 10yr Treasury benchmark.

For Treasuries, 10yr yields have their sites set on long term support around 1.86, which was exactly where Wednesday's selling finally hit the ceiling.  If 10's can manage to hold underneath those levels (or reasonably close to them), it would help to reinforce a range trade stretching back to August 2012.

In the above chart, the gray line is an arbitrarily chosen trendline that had been indicating higher yields until the Presidential election and Greek bailout indecision led to a breakout.  From there we see two major instances of resistance at 1.56 before yields rose during most of December, beginning with the Jobs report, helped along by the FOMC Announcement, and kept mostly above 1.70 through the Fiscal Cliff hullabaloo.

It's that last part--the hullabaloo--that's not quite in the books yet.  While bond markets have done a great job of making it through New Year's Day and the Fiscal Cliff quasi-deal without breaking the high side of their yield range, 10's certainly weren't shy about revisiting the boundaries in a hurry.  In so doing, they broke over the 200 day moving average and back on the bearish side of the old gray trendline.  A confirmed break above 1.86, or thereabouts would be a fairly significant technical shift for rates, even if the impact on MBS continues to be muted.

Frustratingly, there's no telling what will motivate the next big move (or show of support), though we wouldn't ever overlook the jobs report due out Friday morning.  As far as that's concerned, we'll have to wait and see what kind of reaction it will stir up, because Wednesday's data certainly didn't inspire any market movements.  

Thursday, however, could be the warm bowl of porridge in that regard, as it offers a convenient way to front-run Friday's jobs number via ADP's private payrolls report at 8:15am (increasingly correlative since the recent changes?).  It's joined by Jobless Claims at 8:30am and the release of the Minutes from the Fed's most recent meeting at 2pm.