MBS Live Day Ahead: 4 Key Levels to Watch as Bonds Trade Near All-Time Low Yields

1.67, 1.50, 1.43, and 1.32% in 10yr Treasury yields...  These are the only 4 key levels you need right now.  Why are we talking about 10yr yields if this is an MBS site?  Funny you should ask.  Here's a primer:

Why So Much Focus 10yr Treasuries if This is an MBS Site?

For those who aren't into clicking links, suffice it to say that Treasuries are like a person walking a hyperactive, unpredictable, inquisitive, bipolar dog.  And MBS are the dog!  The human with the leash decides when the walks happen and where they will generally lead, but beyond that, this particular dog may tug at the leash, sit on the ground refusing to move, and exhibit any level of compliance in between.  Regardless of the dog's behavior, the master is still going where she's going.

Anyway, here are 3 of the 4 levels:

You won't have to worry about 1.67 today, tomorrow, or hopefully at all this week.  That would be the dividing line I'd associate with pre vs post coronavirus ranges.  Granted, coronavirus was already having an impact before yields moved below 1.67, but it was close enough to a few big bounces in December.  You could also think of this as 1.70%, for what it's worth.  Doesn't really matter...

1.32% doesn't need much discussion.  Simply put, that's the all-time low in 10yr yields.  Breaking below it wouldn't imply one outcome over another.  I'd want to tell you that it would imply an additional rush of positive momentum, but the last time the all-time yield low was broken, bonds only gained a few more bps before bouncing.

1.43 is our key near-term supportive ceiling.  That's the pivot point created yesterday when we broke the multi-year floor established last summer.  Overnight yields only managed to get as high as 1.416%.  If we see them move up and over 1.43%, we'll want to be on guard about the current stint at low yields possibly reversing course.

If 1.43 is broken, it's not necessarily confirmation of doom.  1.50% would still serve a role in that case as another version of the coronavirus line seen at 1.67.  The latter is the bigger picture pivot point while 1.50% is February's more aggressive pivot point--easy enough to see if we single it out on its own chart with an early February bounce followed by a clean break 3 days ago:

All that to say: moving up and over 1.43 or 1.50 would be seen as a sign that the good times are reversing course.  Moving below 1.32% would be a sign that the course "surely must" reverse fairly soon, and moving up and over 1.67% would confirm the course reversal is complete.  I say "surely must" because that's a baseline scenario.  It isn't necessarily prophecy.  Either way though, I think all we can really do is sit around like a cranky old dragon on this newfound pile of gold and keep trying to breathe fire on any little hobbits that come to steal it.  Once they start bringing the dwarves and wizards and what not, then we'll know it's time to fly away and look for the next pile of gold.

In other words: enjoy the low rates.  May the hay.  The sun is shining.  But be vigilant about changes in the weather.  They're coming.  Some changes will come very soon.  Bigger changes could take a while.  When they do, our job will be to determine how long those changes will last before it starts to get sunny again.  

In less metaphorical news, there's really nothing on the calendar today worth noting apart from Consumer Confidence at 10am, and even that has limited scope to shape the broader narrative at the moment.  Still, we may see more willingness to react based on the fact that it's February data.