MBS Day Ahead: Busy Week Likely The Stage For The Next Big Move

After September's big move higher in rates cooled off, we've been left in limbo, to some extent.  There certainly hasn't been a painful continuation to higher rates, but we've had some trouble breaking much lower than the initial rally early last week.  In technical terms, 10yr yields rejected a break above the long term downtrend, but haven't been able to make it back below 2.50.

As you can see in the chart, we're running out of room such that yields will either need to make another push below 2.50, or risk breaking higher out of the longer-term trend again.  There's a good chance we see one of these eventualities win out this week (or next week with momentum that begins this week). 

Several key events might bring that momentum, but the top contender is the ECB (European Central Bank) meeting and press conference on Thursday morning.  This was one of the key events that preceded the ugly sell-off in September and markets will be interested to hear what ECB Pres. Draghi has to say regardless of any policy changes.

In addition (or instead of) the ECB angle, the stock lever has been increasingly interesting of late.  Tuesday marks the end of the quarter and the hand-off between September and October can always be an action-packed time in terms of tradeflows.  We already know that economic data has been very low on the list of motivations for bond market participants.  So apart from simply waiting for big moves in bond markets of their own volition (which can certainly happen this week), or for the ECB on Thursday, motivation could come from stocks even sooner.

Then of course there's NFP on Friday.  Never count that out as far as potential market movers are concerned, but it's increasingly facing a burden of proof when it comes to staying relevant among longer-term market movers.