Bond Markets Slightly Weaker, Holding Narrow Range
The holiday-shortened week is getting off to a fairly slow start in terms of big-ticket market movers. There are ways--probably fairly accurate ones--to connect the overnight movement in Treasuries to various global economic headlines.
For instance, there was alternating bearishness and bullishness surrounding the Bank of Japan's mostly "as-expected" easing announcement, as well as a bit of response to Germany's ZEW Sentiment survey coming in at the best levels since May 2010. Additionally, a case could be made for a slightly bond-market-bearish reaction to the prospect of the House voting on legislation to extend the debt ceiling deadline on Wednesday.
But these look to be minor ebbs and flows against the broader backdrop, which is mostly informed by technical considerations at the moment. In that regard, nothing has changed from Thursday and Friday where the outer limits of the 3 week trend slightly lower in rates was tested on Thursday morning after the outer limits of a 3 month trend moving toward higher rates was tested at the beginning of the month/year.
Thursday's weakness was a clear, linear continuation of that counter-attack in the sense that bond markets held their ground at slightly better weak points than the last sell-off. In that context, this morning has been rather uneventful as trading has fallen well within the ranges suggested by the longer term trend higher in rates as well as the shorter term push back. More simply both MBS and Treasuries are inside the highs and lows seen Friday.
There's been no significant economic data in the US so far this morning and the morning's only moderately important report arrives shortly with Existing Home Sales at 10am. The consensus calls for a 5.1 million annual rate vs 5.04 million previously.
Fannie 3.0 MBS are down 3 ticks from Friday's close at 104-02 and 10yr yields are up 3bps at 1.87, after trading between 1.83 and 1.875 on Friday. We'd note that we're closer to testing the weaker end of the recent "counter-attack" trend, so any moves higher from here would be an increasing technical concern, with a firm bounce off overnight lows around 1.85/1.86 suggesting the next move would be well into the 1.9's.