The Day Ahead: Short Term Pain for Longer Term Gain?

Yesterday

- MBS held in line with previous session lows most of the day

- Treasuries were directionally weaker, just slightly--no drama in the selling

- Data might as well have not shown up.  It did nothing

- Volume was light, and conviction is absent in bond markets

Today

- Several technical studies run the risk of confirming bearish signals

- That last bullet point means if bonds move weaker, they might keep doing that for a bit

- Durable Goods and Consumer Sentiment are mid-tier data releases.  Not negligible, but not exciting

- Depending on volume, either tuning out or watching technical levels.

Strategy

Here's essentially where we're at...  Bond markets came to a crossroads on 9/18 and chose a friendlier path for those who enjoy stable-to-higher bond prices.  The good times couldn't keep rolling indefinitely, and instead had an epic pause to consider the government shutdown, debt-ceiling, and jobs data.  Jobs data was on hold, and so were trading levels as a result.  Once the data came in on Tuesday, we were treated to another significant dollop of positivity for bond markets.

That positivity--like the last instance--has thus far been tempered partly by external events and partly by tradeflows and technicals in the bond market.  The external events this time are somewhat different in that we subtract the fiscal drama and replace it with a bullish earnings season for stocks.  The technical landscape in the bond market is similar in that we're once again seeing signs of fatigue in the initial leg of the rally, even if that observation does nothing to rule out further improvement after we cope with whatever we get in the next week and a half.

After that week and a half is up, we get another installment of the jobs report to cast judgment on the potential journey to lower yields.  Today is the first day of the "in between" time where we stand a chance to confirm a bit of a pull-back over the next few sessions, or where we put that off for a few more sessions (because it's not likely that we wouldn't see the pullback sometime before NFP on Nov 8).  When it happens, if it happens, keep in mind that it's a healthy part of a potential longer-term rally.

Charts

Consumer Sentiment

Various popular technical studies all allude to the possibility of a short term pull-back for bond markets depending on how today's session goes.  This isn't meant to be tangible without a significant amount of explanation, but I mentioned "several technical studies" and didn't want you to think I was making that up.  Leave a comment or send an email if you'd like to discuss these more.