MBS Live Recap: Bonds More Than Make Up For Last Week's Bumpy Ride

From bumpy ride to smooth sailing: bonds gained more ground this week than they lost during last week's range-breaking sell-off.  I firmly believe that would not have been the case were it not for the key events of the past 2 days.  Yesterday, it was the surprisingly dovish ECB Announcement.  Today, it was the shockingly weak nonfarm payrolls number.

Sure, we can point to the internal components of the report and make the case that bond traders could have taken away sufficiently positive cues as dissuade a big bond rally, but who are we kidding?  The number was 20k vs a 180k forecast...  That's not the kind of gap that  typically results in one of these paradoxical reactions.

All that to say: I think the paradoxical reaction (where bonds began selling-off shortly after the jobs report) gave us a glimpse into bonds' agenda for the day.  Traders were looking at a very logical opportunity to sell after ECB helped yields get near the bottom of the recent range yesterday.

While we may have defied destiny on some small scale, holding at the bottom of the range today merely delays the same destiny heading into next week.  The range is still a valid trading cue (i.e. there's resistance around 2.62-2.63% in 10yr yields).  That's unlikely to change unless the week's more meaningful economic data is noticeably weaker versus expectations.