MBS Live Morning: Fighting to Remain Under Long-Term Rate Ceilings

10yr yields hit a long-term ceiling of 1.776 on March 30th, 2021 as bonds quickly priced in vaccine efficacy and fiscal policy.  Several sideways months gave way to a delta-inspired rally.  Political gridlock and persistently friendly Fed policy helped.  With case counts subsiding again and the Fed certain to announce tapering soon, rates are once again testing ceilings as yields cracked back up into the 1.70+ realm last week before bouncing back down.  The new week begins with that ceiling being reinforced, for now.

The first chart shows HOURLY candlesticks including the first few hours of trading in the new week.

Here's where those technical levels fall in the bigger picture:

While it's all well and good to talk about range ceilings remaining intact, it's worth noting that not all ranges are doing as well.  5yr Treasuries, for instance, broke past March 2021 highs long ago and have yet to make a strong case for support.

In order for things to change, inflation expectations and/or Fed rate hike expectations would need to reverse course.  They've been highly correlated lately, both with each other and with bond yields--especially in the 5yr space.

10yr yields are doing a better job of avoiding the suggestion of longer-run inflation expectations, partially because higher inflation has more time to damage average economic growth over the next 10 years.

The week's key data will be Durable Goods for September (Wed) and the first look at Q3 GDP (Thu).  Together with the Treasury auction cycle, the tone should be sufficiently set by Thursday afternoon.  From there, Friday's PCE data will serve as an epilogue for the week--either accelerating the existing trend or forcing it to level off.