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Bond Markets Sideways Overnight, Stronger into Domestic Session
Posted to: Micro News
Friday, October 11, 2013 9:47 AM
Asian and European hours saw very limited movement in Treasuries with 10yrs holding a range of 2.675-2.692. Importantly, the 2.671 technical level held up firmly right until 8:20am. This can frequently be a time of day where things change or noticeably accelerate for bond markets as the the CME pit trade opens and CTA activity ramps up.
Bond markets were right on the edge of a technical victory, holding in the 2.67's when CTAs came online as better buyers. This started a small chain reaction of short covering (traders who had been betting on higher rates being forced to buy bonds in order to cover those bets).
The "window" mentioned in this morning's commentary was quickly "closed" no more than an hour after we pointed it out (meaning that 10yr yields quickly traversed the gap resting on 2.671, effectively defeating the technical signal that would have been very bearish for bonds, had the gap not been crossed).
Trading since then continues to be constructive. Stocks are rising in their first 15 minutes, but it hasn't slowed the roll of bond markets. The next informative event arrives at 9:55am with Consumer Sentiment. The forecast is for 76.0, but we wouldn't be surprised to see something lower given past precedent when it comes to fiscal drama. Any significant "miss" would help solidify these gains for bonds.
10yr yields are currently down to 2.65 and Fannie 3.5 MBS are up 10 ticks at 101-17.
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