MBS Live Day Ahead: Running Out of Ways to Say "Sideways"

Tossed coconut salad...  Fresh coconut milk...  New England boiled coconut... There were only so many menu choices for Yosemite Sam working with one ingredient.  We're in a somewhat similar position over the past month with nothing to observe apart from a range-bound bond market. But whereas coconuts might make someone crazy eventually, who's going to complain about an incredibly narrow trading range just above all-time low bond yields?

The only thing to complain about in this situation is simply the uncertainty regarding the next big move.  Are rates going to break higher or lower?  And when will that happen?

For the foreseeable future, we can make strong cases that argue against a big break in either direction.  Bonds would have a tough time plummeting to new all-time low yields considering rampant Treasury issuance and an ongoing revenue shortfall, not to mention the hope for an ongoing post-covid economic recovery and reflation from fiscal/monetary stimulus.  Conversely, rates would have a hard time surging back up an over 0.95% given some of the post-covid economic changes that are likely to be permanent, not to mention the risk of a resurgence of cases in the winter, vaccine delays, and election uncertainty.

Where does that leave us?  Right where we have been!  All we can do is watch the range, react if a breakout happens (or if it looks imminent), and periodically ponder the path ahead.

There are no significant market movers on the calendar today, but with the overnight gains, it wouldn't be a surprise to see some weakness this afternoon as Traders start thinking about next week's Treasury auctions.  Naturally, traders already know what I just told you, so it's not a guaranteed move--especially not if stocks are doing something interesting enough (aka selling off aggressively).