MBS Day Ahead: Hoping The Orderly Correction Can at Least Remain Orderly

Markets don't always read from a script.  Beyond that, there just aren't many past examples of moves like the one at the beginning of 2015, but so far, the bounce back from Tuesday's low rates has offered essentially no surprises.  If anything, it might be just a bit more resilient than past examples, but then again, the initial rally was also more gradual than past examples. 

One way we can tell that bond markets are in the midst of a true technical correction is the uniformity and linearity of the 3-day trend.  Take a look:

There's ample precedent for 2.04-2.07 being a well-traveled pit-stop on the epic journeys of 10yr yields.  And that's where the corrective trend would converge in the event of overnight weakness or even post-payrolls weakness if the overnight session is tame.  Either way, holding below this 'inflection zone' would be the positive indication we're looking for when it comes to ruling out the sort of correction we saw back in October.

Thankfully, today's payroll numbers will be hard-pressed to impress.  Even if they're much higher than forecast, the total would be very much in line with the tremendously consistent strength  that's pervaded most of the past 3 years.

Finally, to repeat a now familiar caveat: it's all about Europe.  Don't be surprised to see counterintuitive reactions to NFP data if there's any meaningful news or trading activity in Europe.