MBS Live Day Ahead: Stocks and Bonds Both Waiting For an Opportunity

Perspective is always important when considering market movement.  Most decent charting software or any responsibly-created custom chart will scale the charted line to fill up most of the vertical space.  The only downside of this practice is that over short time horizons, it can seem like there's a ton of volatility when there's, in fact, essentially none.  Case in point, check out this wild volatility in stocks and bonds over the past 2 days:

Then check out the longer-term chart of the same 2 lines filling the same amount of pixels on your screen.  The ranges in the previous chart are contained in the small rectangular highlighted sections below. 

Long story short, yesterday and today have been inconsequential in the just-slightly-bigger picture, but there's still information to be gleaned from these sorts of narrow, sideways ranges.  That's especially true for bonds at current levels. 

As yields fell rapidly last week only to bounce at the same lows seen at the beginning of the month, I warned you that the underlying trend was still pointed in an unfriendly direction.  By holding sideways at slightly higher yields, bonds are confirming that narrative remains intact, even if they're not sure where they're going to go next.  The following candle chart of 10yr yields shows the uptrend we'd followed for several weeks leading into June, as well as the .74% pivot point that had served as the ceiling for a horizontal range during that time.  By holding sideways above .74%, yields are voting in favor of the yellow lines as opposed to the horizontal lines.

Now, both stocks and bonds are waiting for the next piece of important data or the next important event to inform their departure from these ranges.  Leading candidates include major coronavirus updates, significant changes in economic data, and fiscal/monetary policy changes.  On that note, today's calendar doesn't boast any economic heavy hitters, but we will hear from Powell again in his 2nd day of congressional testimony.  Coronavirus updates are, of course, an ongoing possibility these days.