The Day Ahead: Bigger Movement on the Horizon

Bond markets may be getting ready to make a bigger movement in the near future for several technical and fundamental reasons.  From a technical standpoint, 10yr yields suggest that bond markets have hemmed themselves in within the confines of recent pivot points.  Additionally, there's been more connection with equities markets this week versus last (see the chart below).  With multiple visits to 1.733 (some aren't pictured in the chart) and now with Wednesday's revisiting of the 1.67's seen during Monday's headline-driven flight to safety, we have some very good technical trip wires in place.  If either of them break, the next move is likely to be bigger than the recent average high/low range.

The reasons for this are both technical and fundamental.  On the technical side, things are pretty simple.  There's just not much to do below 1.67 unless you head into the upper middle 1.5's at least, while a break above 1.733 in any meaningful way almost certainly hearkens a retest of 1.81 in fairly short order.  

That assessment is a bit glib without the benefit of the fundamental picture.  We'll talk more about this in the coming days, but the core concepts include Italy, the domestic stock market situation, and the massive week of data and events coming up at the end of the month (rather, at the beginning of next month with FOMC Wednesday falling on 5/1 and NFP Friday on 5/3).  We're not proposing that we'll be waiting that long before making it to one of the aforementioned breakout levels, but that either of those would serve as a good "lead-off" distance from which to watch the pitch.

Today's data isn't guaranteed to stir things up, but unlike yesterday morning's data (which didn't exist), with Philly Fed and Jobless Claims, this round of data actually has that potential.  Philly Fed is at 10am, and is expected to come in at 3.0.  Jobless Claims are with us as always at 8:30am, seen rising from 346k to 350k.  There are several instances of Fed speeches with non-voters Kocherlakota and Lacker in the morning followed by voter Raskin at noon.  Treasury auctions 5-yr TIPS at 1pm which is typically not a market mover, but can infrequently cause a detectable shift.