MBS Day Ahead: Did Bond Markets Show up Early for December?

Have you ever had one of those awkward super early arrivals to an event?  Did you wait in the lobby?  Was the lobby even open?  Did you hide the fact you were early?  Did you wait in your car?  Did you find something else to do in the area?  Or did you ever simply just sit and wait it out?  Bond markets might be doing the same thing right now.

Here's a chart of 10yr yields with 2 technical overlays and a moving average.  The top section with the actual yield candlesticks has Bollinger Bands and a 9-day moving average.  The Bollinger Band study uses a 21 day moving average as it's middle line (that's the most common setting, and that's what this one is, but there's no rule that says it has to be).  One useful application for moving averages is that when shorter term averages break and hold on one side of another longer-term average, it signifies momentum in that direction (see how the white line breaks below the middle blue line in October?).  When they flat-line on top of each other, it means that all the seemingly sideways market movement we've been witnessing is just that: sideways.

In fact, instances of bond markets being THIS sideways are rare, especially in such close proximity to significant volatility and a visit to the year's range boundary.

So maybe it has something to do with the upcoming holiday and then moreover with the upcoming "1st week of December" which will set the tone through the end of the year. 

It would make great sense for 10yr yields to want to approach any big potential decision from 2.34.  We've discussed that zone since 2010 as an important inflection point, and it's gotten a lot of air-time recently as the dividing line between the golden era of low bond yields in the US and everything else.

If we're to make a convincing re-entry into those golden era levels, it would only be on the arm of the European bond market rally.  Incidentally, the European Central Bank Announcement is that first Thursday after Thanksgiving. 

There aren't really any rules for how next week is supposed to go.  Sometimes it's very quiet and other times those first 3 days end up being downright hectic.  I will say this though: if we don't see any major movement by Wednesday, the prospects for the first 3 weeks in December would be extreme compared to the first 3 in November.