MBS Live Week Ahead: Bonds Staging at 2019's Most Important Crossroads

1.90% has been the most important, most dangerous ceiling for 10yr Treasury yields ever since a nasty selling spree stalled out there exactly 2 months ago.  We'd been able to avoid an outright confrontation until last week's trade deal optimism and bond supply concerns prompted a surge all the way up to 1.973%.  

When yields are approaching a bigger-picture technical level such as 1.90%, I like to look for another level above that to allow some room for overrun.  This is useful in cases where the technical level is treated as a cue for buyers to jump back into the market (because they will often wait until the most obvious technical level is actually broken).  In the current case, 1.94% made the most sense due to its role as a floor back in early July.  Although we saw slightly higher yields at times last week, 1.935% was the highest level at the official 3pm CME Treasury pit close.  And 1.943% was the mark if we're looking at the 5pm close.  Either way, 1.94% arguably played its part.

So far today (the most recent candlestick in the chart above is today's overnight trading), bonds are continuing to operate in the same 1.90-1.94% range.  This pattern is noticeably different than the sharp bounce seen after the September sell-off.  Yields are staging at this crossroads in preparation, or simply to wait out a storm.  Either way, this sort of pattern suggests more balanced odds whereas the sharper movements and single-day reversal in 2019 suggested much better odds of recovery.

As to the factors influencing the next move (or those representing the "storm" to be waited out), this week has some clear candidates and some stealth players.  On the overt side, there's Jerome Powell's 2-day congressional testimony on Wed and Thu.  A throng of additional Fed speeches will hit the wires in that 48-hour window (no fewer than 10 speakers on the calendar!).  Rounding out the above-board contingent of potential market movers, there's Retail Sales on Friday--the only top tier economic report of the week.

As far as the stealthier market movers, the week's biggest to-do may end up being a gigantic corporate bond offering from AbbVie (the biggest of 2019 so far).  The last time Abbvie went BIG in May 2015, it was a big enough deal to be the subject of an entire recap.