Bond markets put in another strong day yesterday, returning to the strongest end of their respective ranges after losing just a bit of ground to start the week. Interestingly enough, 10yr yields found support at exactly the same levels seen the split second before Friday's NFP--almost as if to say "yeah, we're past that and now considering moving lower."
After so much conditioning in 2013 to expect rates moving painfully higher, the prospect of breaking out of the 2014 range toward lower rates is an eventuality devoutly to be wished. Or put simply, 'after so much bad stuff happened for so long, it would be really cool if we get some good stuff.'
But then there's the question of whether or not moving lower past 2.57% (chart below) would mean anything or whether breaking above the white line in the chart above would mean the 'good stuff' couldn't happen.
Ultimately, all we can really know is that Treasuries are very close to 2014 lows and mortgage rates are the lowest they've been since November. We can assume that geopolitical risks surrounding Ukraine weigh on markets to some extent, but we can also assume that it's less of a factor than it is typically presented to be.
Specifically in regard to today, we have Fed Chair Yellen giving her semi-annual congressional testimony (at the House today). We can assume that Fed policy expectations weigh on markets to some extent, but like Ukraine, it's not the key consideration at the moment. So then what is the key consideration?
Unfortunately, right now, there is no shining star among market movers that's clearly driving trade more than other factors. There is no "key consideration," and the past 3+ months of a 20bp range in 10yr yields is evidence of that. All we can really do is wait for one of the contenders to step up. Yellen's testimony is a long-shot as far as any long-term implications are concerned, but relative to the last two days of smaller movements, it's the best bet for volatility today. 2nd place goes to the 10yr Note auction at 1pm with eyes more intently on the horizon and tomorrow's ECB Announcement.
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