MBS Live Week Ahead: First Venture Outside Castle Walls For 10yr in 4 Months

2021 began with heavy selling pressure in bonds following the Georgia senate election (which gave full control of congress and the White House to one political party, thus making it easier to create more supply in the bond market).  Additional selling motivations surfaced in the coming weeks with Feb 25th being the worst day of organic weakness for the bond market since the 2016 presidential election ("organic" means it wasn't like the temporary, artificial weakness seen in the few days at the start of the pandemic as yields found bottom after screaming out for the Fed's assistance). 

All that to say  2/25/2021 was a big day with big volume--one that began with a confirmed break above 1.44% (for the first time since the pandemic began).  Now today begins with the first confirmed break below 1.44% since then.

The next technical targets in the event of an ongoing rally would be 1.38 and 1.35.  After that, the buzz seems to be on 1.25%, but probably for no other reason than it's nice, round, "quarter point" nature (1.282 and 1.223 are the levels that actually came into play on the days that could be considered precedents for 1.25%).  

The actual pinpointing of technical levels is unimportant, frankly.  All we need to know and all we care to discover is whether there's truth to the notion that the path of least resistance for rates is "lower" until things are even capable of getting more serious/negative (or whether the path is lower BECAUSE things aren't capable of getting serious/negative at the moment, with the rationale being that the Fed wants to see how the data is evolving 2-3 months from now before pulling the trigger on any bigger decisions).

We may get a slightly clearer picture of the Fed's reaction function tomorrow with the release of the Minutes from the mid-June Fed meeting (the one where Fed rate forecasts caused a quick sell-off in bonds).  Apart from that, and this morning's ISM Non-Manufacturing data, it's an extremely light week in terms of scheduled events.  We may even end up feeling compelled to revisit past discussions on correlations (or lake thereof) between bonds and oil prices (with the latter hitting their highest levels since 2014 overnight).