MBS Live Day Ahead: Bonds Defending The Castle. Here's The Wall To Watch

Between Friday and Monday, it looked like the bond market might try to hold at slightly better levels than those implied by the recent bounce at 1.0% in 10yr yields.  Apart from being a nice round number, the psychological pivot point at 1.0% happened to coincide with the lower boundary of the trend channel we've been tracking for months.  Granted, such trends do nothing to predict every little movement, but they do suggest a general area for support and resistance.  In the worst case, the current trend puts the ceiling at 1.20 to 1.25% in the short term, but other pivot points could step in to help before things get that bad.

Pictures are worth more words in this case.  The yellow lines show the prevailing trend channel with the "worst case" upper resistance area at 1.20-1.25.  As you can see, that looks like it would take some doing based on the recent bounce at 1.19% and subsequent resistance at the horizontal pivot point at 1.125%.  The fact that 1.125% did such a good job over the past few weeks means we can watch it for an early clue about the progression of the trend.  In other words, if that wall is breached, the bad guys might take the castle.

There really isn't any significant data to inform today's trade, unless you count the overnight data in Europe which already put upward pressure on rates.  As such, we'll probably avoid declaring victory if bonds hold their ground without further losses today and instead revisit the assessment after Friday's jobs report.