MBS MID-DAY: Bond Markets Threaten Another Pivot Toward Higher Rates

The pain continues for bond markets, as does the phenomenon of movement being driven by the unseen hand.  In other words, there hasn't been any significant news or scheduled economic data to push rates higher today.  Instead, tradeflows are quite simply skewed in favor of weakness.

In case you were growing incredulous about my failure to mention today's Greek headlines, fear not!  I see them too!  The only problem is that I see them as meaningless, and you should too.  Nothing has materially changed in Greece, despite ample newswires suggesting an approaching debt deal.  These ARE your grandfather's Greek debt deal headlines!  They are only getting heightened attention because markets have a relentless need to ascribe causality and find meaning in suffering.

The meaning transcends the Greek debt sideshow.  I talked about it more HERE.  Simply put, Greece has an affect here and there, but the bigger issue is the potential epic unwinding of the epic European bond rally of 2014 through the first quarter of 2015.  Sure, it could stop at any time, and that magical 1% level in German Bund yields could be a re-entry point for investors that aren't ready to move up quite so fast, but until the pain actually DOES stop, it doesn't make sense to try to catch a falling knife.

At the moment, we're in significantly weaker territory, but have bounced from the weakest levels of the day.  Best case scenario, we continue to bounce until breaking back through 2.42% in 10yr yields.  Otherwise, this will increasingly look like just another broken pivot  point on the way to higher rates (in the chart below, green circles show the supportive bounces on pivot points while red circles show where rates bounced higher, confirming the 'pivot' toward higher rates.  The last circle on the right is where we've bounced so far this afternoon, just under 2.42).