MBS Live Day Ahead: Technically Under Attack, But is There Hidden Hope?

Much of the analysis of the past few days has focused on the downwardly sloped trend channel seen in today's first chart.  This can be thought of as the "correction trend" that helped bonds settle down after a glut of selling pressure to kick off the new year.  From a technical standpoint, that trend has been under attack for the past 3 days.  In the strictest sense, it's actually been broken.  

That said, the technical breakout has been taking the form of a "trickle" so far this week.  That begs the question: is there some secret reason to be hopeful about bonds' prospects in the near-term future?  Is there some way that rates could get back on track with a moderate rally?

Well, anything is technically possible when it comes to the future of rates.  There's no surefire way to know if the friendly Springtime correction is over for bonds.  We can keep an eye on its progress with the 2.86% pivot point from the chart above.  It certainly could be the case that bonds have only held on as long as they have due to tax season.  As taxpayers scramble to fund retirement accounts before the deadline, some of that money ends up getting put to work fairly quickly.  Money managers are required to invest it fairly quickly.  This could be a reason for the divergence in stocks and bonds over the past few days.

Whether or not that divergence persists is a different story.  Yes, it's good to see that bonds haven't been spooked by the slow, steady uptick in stocks--especially in light of the fact that corporate bond issuance has been on the heavy side so far this week--but that could very easily be due to temporary factors that are soon to run out.  If 10yr yields don't look eager to move back below 2.83% today, we increasingly have to consider that we're in the midst of a shifting trend.  Strong corporate earnings and more gains in stocks would increase those risks.