MBS Day Ahead: Big Move This Afternoon, Either Way

More than any recent event--more than any silly old NFP report--today's FOMC events can and will move markets in a big way.  It's not that markets are going to be surprised by a rate hike if it happens.  Rather, it's the fact that a rate hike determines the cost of money itself.  With so many financial institutions borrowing short term money for all manner of spending, even a .125% increase in the cost of that money would be grounds for significant adjustment in financial markets. 

Similarly, if we assume that markets are at least halfway prepared for a hike that doesn't come today, there's however much time there is between now and the next Fed meeting to have some more fun with that cheaper money.  And be fair Janet...  you say October is on the table for a hike, but I'm not sure anyone believes a meeting without a press conference is fair game.  You'd have to show us before we'd believe you.  So really, there are roughly 2 months of fun to be had if there's no hike.

I know I said yesterday that I would make a bullish technical case for bonds with charts that were just as convincing.  I checked.  There aren't as many options.  But that can be (and has been) bullish in itself.  I can't count the times that a certain point of few gained lopsided sponsorship due to a preponderance of technical support or lip service from talking heads.  Even then, we don't really have a lopsided belief that rates will move higher after the Fed.  In fact, we have a lot of opinions out there about a lot of different outcomes--so much so, that we should be very surprised if we don't get a huge move, no matter what happens.  It remains to be seen if hike or no hike produces a rally or sell-off.

For those of you who needed that bullish chart, here's long term 10yr yields.  The trend is your friend, until it's not your friend any more.

It won't stop being naive to think this trend won't continue until that upper line is broken.  We'd need to be somewhere between 3 and 4 percent for that to happen today.