MBS Week Ahead: Time for a Change in Bond Markets? Depends on Fed

It's an easy answer to be sure, but this time it's probably the best one.  Financial markets, and especially bonds, stand the best chance to be inspired by Wednesday's FOMC events.  This is one of the meetings that is accompanied by the staff economic projections as well as the press conference with Yellen.  Those (4 out of 8 each year) tend to result in the bigger market reactions and March has seen some big Fed related spikes over the years.

At stake is a clearer picture of how the recent economic data is affecting the Fed's steady move toward removing policy accommodation.  The first phase would be a hike in the Fed Funds rate, and markets began pricing in a June hike after the last Jobs report.  Somewhere between the Announcement and Yellen's press conference, we could get some significant clarity on that.  If we do, it's very important, and may well determine if bond markets can finally turn a corner and get back into a more favorable technical zone. 

Rates (as represented by 10yr yields below) have been almost exclusively in a negative technical zone since the beginning of February.  One way to represent said zones mathematically is with the Bollinger Band technical overlay.  As you can see, even though yields have been in that negative zone, they've been staging for a potential break, and other technicals suggest it's at least a possibility.

Apart from the Fed, markets are still more than capable of finding other sources of inspiration.  Economic data is modest in general, but front loaded on Monday and Tuesday.  When combined with European market considerations, momentum may well be underway even before Wednesday's FOMC events.