MBS Live Day Ahead: Bonds Running Into Same Rate Floor Ahead of Fed

Fed day tomorrow!  We'll finally get to see what's what with respect to recent speculation and a factual shift in tone from several Fed members (including Powell).  But we have a day and a half of trading to get through before that happens.

As today's trading ramps up, we're seeing starkly clear confirmation of the consolidation range that I can't stop talking about over the last week and a half.  The boundaries are now clearly set at 2.92% overhead (successfully defended as a ceiling on Wed/Thu last week) and 2.82% (which has offered several floor bounces starting on December 6th).

2.82% is highlighted on the chart because that's the boundary we're closer to this morning.  In fact, yields bounced there in the overnight session, and from a purely technical standpoint, that doesn't bode incredibly well for the rest of today's momentum.  The suggestion is that yields will retreat back into this well-established range and wait for tomorrow's Fed events to vote on a breakout.

Beyond today's trading, the momentum technicals are decidedly 'overbought,' which increases the risk of an unfriendly bounce.

None of this is to say that rates couldn't break below 2.82% and continue rallying after the Fed.  It really depends upon what the Fed says and how they adjust their rate forecasts.  Rather, the technicals simply suggest that--all other things being equal--there is more latent momentum waiting to push yields higher versus lower.  That's worth considering for those who are on a fence with respect to lock/float strategy heading into tomorrow.