MBS Live Day Ahead: One Floor Opens, Another Takes Its Place

10yr yields broke below 1.075% yesterday--a level that had proven tough to break despite multiple attempts in the past 2 weeks.  The move followed several large block trades that provided leadership for an otherwise range-bound market.  Some reports suggested the big move lower in stocks and the rally in bonds had to do with Senator Schumer pushing the stimulus timeline back to "mid-March."  While that looks entirely plausible for the stock market, bonds were already on the move before that, and the big trades hit more than 10 minutes before the first Schumer-related news hit the wires. 

In general, there are strong cases to be made AGAINST big moves in either direction unless new data or information come to light that speak to the growth outlook in some significant way.  Monday's move was surprisingly strong in that regard, but it could just as easily be seen as a normal in-range correction from the upper end of the prevailing trend channel (the yellow lines in the chart below) back toward the lower end.  Additionally, the gains stalled out right at the intraday lows of 1.03% from January 7th--the first major plateau after the Georgia senate election on January 5th.  With 2 more bounces at 1.03% yesterday afternoon and in the middle of the night, that's now the level to beat if bond bulls want to see the lower boundary of the trend.

Traders are typically more defensive in the bond market ahead of Treasury auctions, such as today's 5yr offering at 1pm.  That's more of tendency than a rule.  If yields manage to break the floor before then, it bodes well for the auction results and for the durability of the breakout in general.