MBS Live Day Ahead: What's The Next Ceiling For Bond Yields?

There are several ways to look at "the range" when it comes to post-covid trading levels in the bond market.  There are several ways to look at "the bond market" for that matter, but as usual, we'll focus on 10yr yields even though this is an MBS site (here's why).

In the bigger picture, yields are still in a very low, very narrow range with historically light volatility.  Up until the end of September, we could even say that shorter time horizons were also boasting exceptionally low, narrow ranges.  0.62 - 0.72 was a prime example, and it was intact for nearly 2 months starting in early August.  Over the past 3 weeks, however, yields have clearly been on a mission to move toward higher levels.

After .72, it was a very easy call to name 0.79 the next ceiling on the list.  That's exactly where yields topped out during the only breakout attempt of the past 2 months (late August).  And it's exactly where yields went on the same day of the most recent breakout (10/5/20). Unlike the late August breakout, this one stuck.  As of yesterday, in fact, even 0.79 has given way. 

That leaves us in the uncomfortable position of being without any recent track record for higher support levels.  The first phase of damage control in these cases is to simply observe where the current selling spree stops.  Yesterday it was 0.84%.  Yields are under pressure today, but they've gone no higher. 

So 0.84% works for now, but what if the weakness continues?  We can bring in other lines like the 200 day moving average (currently running through 0.86 and falling), but I really don't care for moving averages for pivot point purposes (here's why).  The even simpler option is to go back to a time when yields were high enough to provide some track record--in this case: March.  In so doing, we see a clear case for 0.88% as a pivot point (note: I like to use hourly candlesticks when pivot hunting as the granularity does a much better job of showing bounces).  We also see some of the best examples of "pivot behavior" up at 1.00% as well (the big ceiling bounce earlier in the month and then multiple hours/days spent bouncing PERFECTLY on 1.00% as a floor before finally breaking back below when the Fed ramped up its buying spree).

Long story short, we can use .84 today.  Fans of moving averages can use .86.  If those ceilings break, .88 and 1.00 have the most historical relevance.