MBS Day Ahead: Technically Speaking, Bonds are in Trouble. Too Obvious?

One of my favorite little snippets of analytical wisdom (or perhaps it's an out that I leave myself in case I'm wrong... yes, that's probably it) is something to the effect of the following: The biggest risk to this assessment is how obvious it is.  When I dust off this gem, it's not meant to imply that one thing is necessarily more likely to happen than another.  Rather, it's to let you know that anyone looking at the technical landscape would be experiencing some sort of tunnel vision on similar conclusions.

This time around, the obvious assessment is fairly negative.  Well, it's entirely negative as far as the following chart is concerned:

These aren't the only technical studies in the world, but they're some of the most 'mainstream.'  Any given technical study, in and of itself, isn't worth too terribly much, but when most of them become aligned in their message, that's when you want to take note of the additional wind in the sails, or--in this case--headwind.

Long story short, the past two days have taken a fairly flat technical outlook for bond markets and turned it completely bearish.  Again, the weakest part of this analysis is that it's so obvious you can assume every trader out there is well-aware.  

What does that mean to you though?  If we consider the obviousness of the conclusion, does that mean it's less relevant?  Yes and no.  I would put it like this: it's so obvious that the excited urge to sell bonds might run its course incredibly quickly.  I would also put it like this: any time it's this obvious, you have to respect the potential for further damage.  As I said after some of the weak data last week, I'd now actively be cheering a sell-off in bond markets because I think the bigger picture is weak enough that we're going to get a much bigger rally in the future.  The sell-off then wouldn't be serving the purpose of those who think bond markets deserve to be weak, but rather of those who simply want a better price at which to "get long" again.

Where will traders be most interested in getting long?  The closest technical level in 10yr yields has already been exceeded (2.13-ish), but we're close enough to it that there's still some chance of a technical "rejection" if we were to rally convincingly today.  After that, it's up at 2.27-ish, which I think would be the lowest possible level that would flat-out excite a decent amount of traders.   Utter excitement doesn't set in until 10's are closer to 2.47.  That said, the long term outlook is so hopeless (yeah, I went there, don't hold me too it... I'm in a mood) that 2.47 may be too tall an order. 

In other news, check out this article that asks where interest rates will be when the economy is finally healthy.  Is it just me or are too many people hung up in this old way of thinking about equilibrium interest rates?  Why would it be crazy to think that with productivity and birth rates increasingly leveling off (as any given society matures) that the growth rate would level off too?  Pundits used to be super duper dismissive about the US "turning Japanese," but with German Bund yields having hit 0.04 this past April and closing at a still-ridiculously-low .531 yesterday, AND with China flat-out announcing it's devaluation plans, AND with the ECB increasingly dancing around the topic of currencies' role in economic growth, it's much harder to be dismissive. 

Maybe it's time for the pundits to consider that rates don't necessarily have to go higher just because they were higher when the pundits were in school.  (I have the benefit of not having paid attention in school, so I don't know any better.  Sometimes a lack of indoctrination is the best education.)  Just a counterculture debate platform for you to take to next cocktail party.  Viva la Resistance.