In two short days, bond markets have gone from being closer to 1-month highs to the best levels in more than two weeks. Such things only become possible when ranges are narrow and sideways, and indeed they have been.
In fact, rates have been consolidating for most of the year now, as can be seen in the chart below (yellow lines show the consolidation). But yesterday's rally challenged the pattern. In and of itself, that might not mean much, but this time around, it's occurring simultaneously with favorable movement in key technical studies (seen in points 2 and 3 below).
As always, technical analysis can't predict the future and doesn't even speak to probability in the way most non-technicians would like it to. Instead, it can really only offer a comment on what trends are in play and how strong they are. In the current case, we had a sideways, uneventful, frustrated trend, and now it's morphing into something that's decidedly more bullish. Technicals help us arrive at that conclusion.
Unfortunately for that conclusion, fundamentals suggest it could simply be a factor of month-end buying, which only has 2 more days to wrap up. Month-end trading and corporate bond hedging may explain a good amount of this week's heretofore surprisingly pervasive strength. At the very least, we'll have to take a hard look at early March to see if said strength goes missing--assuming of course, that trading levels aren't hunkering down for NFP.
If something is going to have a substantial effect on trading levels in the meantime, Today's Yellen testimony before the Senate Banking Committee would have to be a contender. That's at 10am. Before that, Durable Goods and Jobless Claims are out at 8:30am. Neither are amazingly important, but certainly far from inconsequential. The afternoon wraps up the week's auction cycle with 7yr Notes. Even though 7's are a step in the right direction in terms of aligning with MBS duration, they're a lower-volume, less liquid issuance that doesn't tend to see much movement following their auction. It'd have to be much stronger or weaker than recent averages to cause much of a stir.
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