It might as well have been a Friday... The characteristic pattern of gains in the AM turning into linear losses by the close is all too familiar. At the end of the day, the 4.5 found itself down 9 ticks to 100-16, not nearly as bad as the 10yr's 21 tick drop. In terms of spread the differences weren't so pronounced as yields diverged maybe 2 bps. As opposed to the below-average volume in tsy's, MBS were pretty much in line with it's recent norms. keep in mind, however, that those "norms" draw on a significant amount of low-volume summer trading. Whatever the underlying market flows might be, we lost ground today on rate sheets.
As AQ mentioned, this keeps us range-bound. Considering the fact that nothing happened today, a little slap-chop within a range is acceptable ahead of an increasing amount of data. The more potentially serious developments occur with the onslaught of a shortened data week tomorrow, combined with the technical levels afforded by our little range exploration today. In other words, the range-trading today happens to leave us at one of those "crossroads levels" right as the data picks up for the week, AND on a week where the data that actually does exist gets a bit more emphasis. Why only 3 days of data this week? Nothing scheduled for Friday due to quad witching (normally hearkened as a driver of volatility in and of itself).
So what kind of crossroads are we dealing with?
Hey! The chart said it for me... Basically, we look to be approaching the high end of the previous trading range which we have not ventured back into since breaking out to the upside at the turn of the month. Hopefully you're familiar by now that the technical argument here is that a previously strong ceiling suggests itself as support once prices cross it meaningfully.As far as the current range, the chart above clearly suggests the low end coinciding with the high end of the previous range. But where's the high end of the current range?
Yeah... 101-00... Haven't closed over 101-00 since before the dark times... Nonetheless, there are some clearly defined uptrends offering competition to "the mighty ceiling," and it looks like they'll get their respective title matches soon, for better or worse. All I know is this... Until we hold over 101-00 for a few days, and by more than a few ticks, it's the odds on favorite in any race against competing trends. To be clear, that's NOT to say we can't or won't go higher, but just 101-00 deserves our caution and respect until it's era has clearly passed.
So proceed with caution. Staying over 100-12 is good for today, but didn't really do much to inform the data-packed day tomorrow.
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