MBS Day Ahead: Now All We Need is a Reason to Rally

The sell-off is getting old, literally and figuratively.  Of course it's old in the sense that no one likes it, but what about it's objective age?

There are different ways to measure how old a sell-off is getting.  This particular move is old in terms of the number of consecutive days spent moving higher in yield.  From there, we might also looks at the number of days that yields have given a certain technical signal.  One thing that jumps off the screen at me is the consecutive breaks of the upper Bollinger band.  Those are the 3 little squiggly lines you'll sometimes see on technical charts where one line is in the middle of charted security's price and the 2 outer lines tend to encompass most of its trading range.

These five consecutive breaks jump off the screen because we just don't see them very often.  While historical examples vary in terms of the long term implications of these sorts of moves, the short term implication is friendly: SELL-OFF EXHAUSTION!  If it's not here today, it will be soon.  That means that we'll soon have a trading day where bond markets are just 'done' selling off regardless of the incoming data, though having data that supports a bounce makes things easier and would afford us a more convincing bounce, most likely.

When that bounce happens, it will mark the beginning of a few very important days--days in which we'll get a glimpse of bonds' long term leanings.  If we're to maintain the 2015/2015 status quo, this bounce will be big and determined.  If it's not--and especially if it's very shallow and temporary--we'll be forced to confront the possibility that February marked the lowest rates of the year.

Even though we've had Europe and corporate bond market activity playing significant rolls in Treasury and MBS markets, domestic data has also been increasingly important.  In that regard, today is a big deal simply due to ADP Employment.  It always has the ability to drastically alter the pre-NFP trade.  The forecast is for 200k payrolls after 189k last month.