MBS Day Ahead: Data-Free Day Leaves Bonds to Ponder Long-Term Ranges

Having spent the last 4 sessions trading near 2.47%, 10yr yields are operating in an important zone historically.  For all intents and purposes, yields have only ever moved decisively through this zone one time without bouncing back shortly thereafter.  That was in 2011.

Personally, I view mid-2011 to mid-2013 as a perfect storm of sorts where multiple factors all conspired toward the same conclusion.  Whether it was European systemic risk or the apparent permanence of the Fed's QE (remember, at that point the question was only ever "should the Fed be doing even more" rather than "when will it be time to do less" that crept up in early 2013), it was a good time to be Treasuries and MBS.

It could simply be a coincidence, but this zone around 2.47 has acted as the line of demarcation between that perfect storm and everything else.  I'll be the first to admit that the simple fact that the charts suggest this in and of themselves, is little reason to believe it must be so.  In other words, just because there's a fairly tidy line separating these eras doesn't mean it will continue to be tidy.  That said, it's not without it's meaning. 

Crossing this desert in the 2.4's would simply be "significant if it happens."  And more so if such a cross is sustained.  Whether or not such a thing happens very likely will depend on next week's relatively epic line-up of data and events.  That leaves this week as a time to reflect on the long term and to simply watch and react in the short term.