MBS Live Recap: Bonds Win Without Help From Stocks, But There's a Catch

Today was "nice" in the highly charged sense of the word where it's meant to convey a certain acceptability and a certain absence of excellence.  Bonds didn't weaken in any disconcerting way.  They even managed to make some gains--both at the open and heading into the last hour of the day--all without any help from the stock market during domestic hours (stocks improved). 

All that stuff is "nice," but what are the counterpoints?  

First off, today's closing levels are only an improvement compared to the worst closing levels in years. 10yr y ields ended up right in line with prevailing "mid 2.8's," which have been intact for 5 straight days.  Additionally, there was no attempt to break below 2.82%--roughly the same floor of resistance that blocked our progress yesterday morning.

As has been the case, we'd really need to see technical floors broken for several consecutive days before considering a shift in the broader uptrend in rates.  What, then, are we to make of the 2 past days of relative resilience?  In short, bonds stand a chance to consolidate at current levels.  That is, they may improve a bit more and generally avoid a massive break above recent highs. 

That pattern could continue for a few days or weeks before the selling resumes and we're off to more new long-term highs.  Of course, there's always some small chance that the pattern could actually reverse and give way to deeper correction in rates, but I personally think we'd need some serious help there (from something like an even bigger correction in stocks.

The final counterpoint is this: nothing about the past 2 days may matter very much after tomorrow morning's Consumer Price Index (CPI) data.  This is the new NFP when it comes to bond market movement potential.  Current forecasts see the year-over-year CORE number falling to 1.7% from 1.8% last month.  If it falls to 1.6% or below, we could see a deeper correction in rates.  But if it holds at 1.8% or better, it could quickly be GAME-ON for the broader trend higher in rate.