MBS Live Day Ahead: Does Inauguration Day Matter For The Bond Market?

Does inauguration day matter for the bond market?  Not as such, no.  To be sure, the changing of the guard in D.C. is indeed a big deal for the bond market, but only because the senate flipped to democratic control as well.  The inauguration is just ceremony marking a transition that's already priced into the bond market. 

What about another incident like the storming of the capitol last week?  If that incident was any indication, bonds won't be too interested in that sort of drama unless it's far worse or actually has a lasting, disruptive effect on the government.  Bottom line: it's a day to get through before the bigger market movers arrive.  Traders are far more interested in seeing the details of the next iteration of stimulus and whether or not it can pass the Senate.

As for today, there are no big ticket market movers on tap.  The only scheduled econ data of note is the NAHB housing market index (builder confidence).  This can offer somewhat of a sneak peak at the state of the purchase and construction market (data that will be released tomorrow in the form of Housing Starts and next Thursday with New Home Sales).

Data is a 2nd fiddle market mover at the moment though.  To reiterate, bonds want to know what's up with stimulus in the short term.  In the longer-term, the Fed's level of accommodation will continue to be a very big deal.  On that front, all we can do is wait for an indication that they're moving closer to considering a shift in their bond buying plans.  Of course, strong econ data can help us predict when that will be, but the bigger market reactions are always reserved for true confirmation from the Fed.  

Turning to charts, we see Treasury yields in a clear consolidation pattern in the short term (higher lower and lower highs).  The teal trendlines are converging by the end of the week, and the breakout will likely be inspired by the early read on stimulus negotiations.  A negative breakout (red line) implies a revisit to the longer term uptrend (yellow lines).  A positive breakout would be hard-pressed to make it all the way to the lower yellow trendline.  Thus it could set bonds up to solidify some new floor in the low 1% neighborhood.