Bond Markets Rallying Hard This Morning; Best Levels Since June 2013
Bond markets were moderately stronger overnight with some help from European bond markets. Even then, Treasuries were already trending toward lower yields. 10yr's hit the domestic session about 2bps lower at 2.498 and have since fallen to the lowest levels in more than 11 months (2.4697 currently). MBS have made a similar long-term break out by moving above 103-02, currently up 11 ticks at 103-02.
As suggested in the Day Ahead, any big move would "have to come from tradeflows and technicals unless we happen to get a big enough headline." Reason being: there are no significant market movers on today's calendar, not to mention the fact that we've already seen 'big moves' and remain clearly lacking in overt reasons.
With respect to 'tradeflows and technicals,' take a look at the chart of 10yr yields posted this morning:
Now it looks like this:
This is the "technical" piece of this morning's equation--i.e. breaking the yellow lines suggested a possible move to 2.47. Although yields have already been as low as 2.466, that's not a big enough break to consider the range "broken." Adding to that assessment, 10's are currently holding just over 2.47.
The technical significance of 2.47 does more to account for why the rally leveled off where it did. As for why it got going in the first place, again, there are no satisfying sources of causality apart from "that's the way the traders are trading"--essentially the most flippant and least informative way to describe the concept of "tradeflows."
With that in mind, like begets like when it comes to days that are devoid of significant market movers. Trading motivations come from the observation of other big trades. Sometimes those are actual decisions ("based on these big trades I'm seeing, I'm deciding to buy/sell here") and other times traders are simply forced in ("crap... 10's just hit 2.47 and I have a stop-loss in place there. Looks like I just automatically bought Treasuries to close my short position").
Through an unknowable combination of those decisions and 'forced hands,' momentum picks up and longer-term technical levels become likely targets. And so it is that I can write these many words this morning with 10yr yields holding between 2.47 and 2.48 the entire time.
A major break below 2.47 is a bigger consideration. As for now, we have a positive bias in momentum that has gone about as far as it can go without being labeled a more significant event. That's not to say breaking below 2.47 is impossible before next week's important data, just that it would be a tall order.