In at least 2 discussions on MBS Live yesterday, I referenced the current technical landscape in a clever way by saying the biggest risk to the analysis is how obvious it seems. This is clever because I get to be right no matter what. If rates improve, that would make perfect sense because technicals obviously suggested it. If rates rise, well then the technical picture was TOO obvious.
Realistically, there's more than a token amount of truth in this assessment. Even though it covers both bases, it's not the sort of thing you can observe about bond markets very frequently (because the technical picture isn't usually so clearly biased). But what does that even mean? 'Clearly biased?'
In short, several of the most widely-followed technical studies are sending signals at the same time. 10yr yields crossed both 25 and 50 day moving averages yesterday, as well as the 21-day exponential moving average which serves as the mid-point for the Bollinger Band study (the wavy blue lines in the chart above). Stochastics are bullish and have room to run. MACD crossed into bullish-momentum territory, and RSI crossed below the 50.0 level, with room to run.
What in the world does all that crap mean? Here's a secret: it really doesn't mean half as much as it sounds like it might. Most technical analysis is good for framing the past so that we can better assess whether or not future changes mean anything. These technicals tell us what we already know: that bond markets have been trending lower in yield for a few days after.
Some market watchers and even some market participants will see the confluence of bullish sentiment in these studies and conclude that the underlying momentum is currently bullish. Indeed that's the case from a strictly technical perspective. But none of these technicals are mysteries. Market participants can safely assume that all other market participants are aware of them. Heck, even that guy with the MBS blog wrote about 'em!
If we have any hope today, it will likely have more to do with the battle for nearby inflection points. 2.57 is the most important nearby level and holding underneath that would be a bonus. A bigger bonus (and a taller order) would be a break below yesterday's lows in the high 2.52's (essentially 2.53). If either of these near term pivot points are broken (in red, below), it would suggest a visit to the teal lines.
Whether or not today's economic data matters in this fight, remains to be seen. Markets have had an on-again off-again relationship with data, but clearly reserve the right to go in the complete opposite direction from that suggested by this morning's reports. Those are both moderately important, but won't necessarily be major considerations unless they deviate majorly from their forecasts.
Incomes and Outlays probably has more potential for shock value in that regard, largely because we just had our first negative reading in Spending in a year last time, and the forecast calls for a +0.4 improvement this time. I'd guess we have +0.2 to +0.3 priced in and actually hitting +0.4 or better would be negative, all other things being equal. but if for some crazy reason spending manages to come in flat to negative, it stands a good chance of helping confirm the bullish technical picture discussed above.
One caveat here is that 1pm brings the last Treasury Auction of the week, so we might only be seeing part of intended movement until that's out of the way.