Selling Spree Continues Despite Mixed Data

The unfriendly trend remains firmly intact this morning with 10yr yields up several more bps and MBS down another quarter point despite mixed economic data in the Durable Goods report.  The 3.07% technical level in 10yr yields was broken shortly after the data. This now completes the round trip from the bullish range breakout in late July (depending on whether we choose to view the range ceiling at 3.07 or 3.17 that is).

The day's next big inflection point could be the 1pm 5yr Treasury auction, but in a slightly broader context, much of this week's weakness could be attributed to selling the rumor and buying the news ahead of Friday's Jackson Hole Powell speech.  In other words, traders are positioning defensively for Powell to confirm that the market read too much into the weak econ data in late July and also that recently promising inflation headlines were mostly a factor of a drop in energy costs as opposed to the bona fide reversal in core services inflation that the Fed really wants to see.

With 3.07 breaking so easily this morning and no hint of a reversal yet, it wouldn't be a surprise to see 3.17% before bond buyers get bolder.  Even then, the most sustainable reversal will require a sustained shift in the econ and inflation data.  To whatever extent the market thought it was seeing that in July, August's trading is evidence that July's conclusions were premature.