MBS Day Ahead: Bond Markets Teetering on Technical Ledge; Could go Either Way

Things are finally getting interesting again for bond markets after almost all of 2014 has been relatively boring.  Unfortunately, what's interesting in terms of market-watching isn't necessarily good for rates.  Today's chart shows this stark reality.  Specifically in the two technical studies under the main chart, you can see just how different things are looking from the rest of 2014.  Even in the upper section, the popular Bollinger Band study is working against us at the moment.  Long story short, if 10yr yields remain unable to break below that middle line, the suggestion is for a return to the upper line, currently just over 2.70.

There are technical studies for every occasion and every bias, however, and there are still plenty of ways to view things constructively.  Although economic data has been almost wholly ignored lately, GDP has done a better job of moving markets.  Perhaps some of the current indecision for bonds (in that they looked strong until yesterday) is with an eye toward Friday's GDP reading.

Today's data is slightly less potent, but there are two reports at 8:30am and then the last Treasury auction of the week at 1pm.  More important than the data, however, will be the technical levels.  It's important that 10yr yields stay under 2.615 through Friday afternoon.  Anything above that is ominous.  Anything below 2.52 would be quite the opposite.