MBS Live Day Ahead: Is The Bond Market's Luck Running Out? We'll Know Soon

The premise for today is remarkably simple.  In fact, it really doesn't need many words by the time you see the first chart.  After Powell and the Fed's framework change caused a spike in bond yields last week, we've recovered by almost perfectly identical amounts every single day.  The timing has also been eerily similar.  A smattering of buying shows up in the early domestic hours and a bigger rally prevails heading into the noon hour.  

The simple yes or no question to be answered today: will yields make it down to the target implied by the prevailing trend?  If they don't, we might conclude the past few days were merely a post-Powell correction.  In fact, even if we do hit .63, it wouldn't necessarily be time to celebrate.  Looking at the chart above, note the resistance at the lows on the 21st and 24th.  The 24th was the Monday of Powell week and markets were arguably already getting in defensive position for the Fed.  In other words, a return to .63 is probably an even better target for a post-Powell correction.

Longer-term charts agree.  0.63% was a pivot point earlier in August and at the end of June.  If we're trying to pick the bottom of the longer-term range that has seen the most bounces, it's one of the two best levels to consider (the other, better level being .57%).  On a housekeeping note: I adjusted the most recent uptrend we've been tracking as seen in the chart below.  The old version was too steep.  It didn't even have a relevant upper boundary as a result.  The new version allows for the possibility of resistance today without the trend being broken. 

The conclusion would be the same as the breakout of the previous trend: exiting any means we're looking for relevant pivot points to get a sense of the market's preferred trading range.  We'll view .63 as the lower boundary target unless it's convincingly broken.  As such, it's a good lock cue for those inclined to float until the market gives them a reason not to.  More aggressive attitudes would prefer 0.57%.