The Day Ahead: Busy Earnings Schedule, More Meaningful Domestic Data

Bond markets ended up roughly flat on Tuesday, which is saying something considering the sense of grandeur that pervaded the early morning trading.  10yr yields returned to the scene of many recent crimes--1.683 (the crime being the prevention of lower yields or even the excitement of a range breakout)--and tested the resistance floor several times before finally breaking out heading into the 4am hour.  After 1.683, the only other recent or long term resistance level is somewhere between 1.673 and 1.678 (1.674 is pictured in the chart below, but it was a fairly arbitrary placement decision).  After that gave way, 10's picked up the next 3bps quite quickly, giving us hope that we were seeing the first vestiges of a "lead-off" before next week's big ticket events.  We were even treated to some supportive bounces in the 1.67's (which is fairly typical of the confirmation process in the breaking of a technical boundary), but it wasn't long into the domestic session until 10's gave up defending that inflection point.  Note that the only bounce on the way back up over previous highs was right at 1.683 (and forget the Twitter-induced spike at 1pm.  Sigh...)

To summarize the preceding thoughts and chart of the 10yr, as far as range breakout attempts go, this one was unsatisfying. It wasn't the sort of breakout that left one convinced that bond markets wanted to shift gears, but to be fair, it didn't necessarily make the opposite claim either.  Perhaps an hourly chart of MBS prices will paint a truer picutre:

Yes, that's more like it.  Sideways to slightly stronger...  

Wednesday then, becomes somewhat more important in the sense that it has an opportunity to confirm a breakout on the daily chart if and only if it can muster another decent rally attempt.  Closing below the lower magenta or teal line in the chart below would go a long way toward solidifying a positive "lead-off" heading into next week.  Otherwise, it looks like we're parabolically bottoming around 1.7, with some overrun on either side.

As far as economic data that might inform such a move, the heavy lifting is left primarily to Durable Goods, which has had it's moments as a market-mover in the past, but is by no means guaranteed to offer an encore performance.  The consensus is for a fairly big drop to -2.8 percent.  That might seem like a big jump from last month's +5.5 percent, but only until you look at the following chart.  In addition, there will be another boat-load of earnings as well as a more meaningful Treasury Auction at 1pm--this time 5yr Notes.