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Bond Rally Continues as Stocks Open Weaker; Europe Still Helping
Posted to: Micro News
Tuesday, July 8, 2014 10:04 AM

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10yr yields have quickly moved to test a break below the important 2.57 level.  They'd been holding near 2.58 since about 9am, but went on another push lower after equities opened weaker.  European bond markets were also improving at the same time.

2.57 is/was the closest major rally target, so it wouldn't be a surprise to see some sort of pause for consideration here.  It could also serve as a profit-taking target for shorter term trades betting on lower rates back at the 2.66 level.  In those cases, the technical target is usually broken by a modest amount before selling kicks in.

If it's broken by more than a bp, then all bets are off.  We'd expect a bit of hesitation ahead of the week's remaining Treasury auctions.  Other than that, any sustained strength below 2.57 implies a run to at least 2.52 with the bigger deal being the 2.47% technical level.

Fannie 3.5s are not keeping pace with this move so far--only up 7 ticks versus 13 ticks in 10yr prices.  Most of the gains were intact before the first rate sheets of the day, so positive reprice potential is limited.

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