In one of today's updates for MBS live subscribers, I noted that bond markets continued to trade "as expected." Where did those expectations come from? Earth-shattering conclusion: rates could have gone higher or lower today. While that much is obvious every day, the path taken can vary by the millisecond. Given that yesterday's weakness brought rates to the highest end of their two month range, but also maintained a long, sideways streak, one potential outcome for today was for rates to break higher, taking a "lead-off" into tomorrow's NFP. This would have required some combination of negative reaction to the morning's ECB events and the ISM Non-Manufacturing data. When we didn't get either of those things, we're left with one overt conclusion--that rates are staying within the range--and one fairly logical deduction--if they were pushing the weakest edge of that range yesterday and NFP is coming up tomorrow, they're not likely to go stampeding back to the other side of the range. Such is the case with prices and yields today. MBS have been clear in their mission to hold above yesterday's lows, but equally clear to meet resistance before breaking yesterday's highs. Same exact story for Treasuries. 10yr yields respected the technical ceiling in the 2.80-2.82 zone and bounced hard at yesterday morning's pivot point in the 2.77's.
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