MBS Live Day Ahead: With or Without Turkey, Bonds Face Same Challenges

Turkish Lira bounced in the overnight session--not in any epic fashion, but enough to result in a bit of spillover for stocks/bonds.  10yr yields rose as high as 2.9022 before cooling back down.  Notably, yields fell even as Lira maintained its token recovery.  This simply reiterates yesterday's point that US markets have their own agenda.  Although they may periodically pay some attention to big swings in Turkey, they have already shown an ample willingness to trade against the grain of Lira volatility.  

With that in mind, the recent floor around 2.85% looks like the next major technical level for 10yr yields, whether we're looking at US markets keeping a close eye on Turkey or not caring at all.  In other words, this was a bounce that bonds had decided on yesterday, independent of further declines in Lira.  On the other hand, if you want to give this week's general bounce in Lira credit for prompting selling in US bond markets, 2.85% then becomes the the floor that lines up with the general bounce in Lira seen below.

If we manage to break below 2.85, there are a slew of other technical levels based on the 'higher lows' seen so far in 2018.  Those are seen in the teal lines below.  The most pessimistic scenario would see the yellow line continue to guide the aforementioned higher lows--well... higher!