The past 3 trading sessions marked 3 of the 5 lowest closes for 10yr yields in 2017.  Friday's strength did a nice job of pushing back against a potential bounce that took shape after last week's Fed announcement.  That strength helped build the sense that bond markets were staging or "hanging-out" near the year's best levels, but still mulling the decision to break convincingly lower.

After all, we did see the year's best levels on Wednesday morning, so there's a case to be made for not setting the bar too high when it comes to what a bond rally must look like.  On the other hand, we have yet to see a "confirmed" close under "the gap" (an important technical zone from 2.15-2.17%).  "Confirmation" would mean 2 consecutive closes under 2.15%.  Friday was the nearest we've been to that confirmation with 3pm closing levels of 2.153%. 

It's not as if some magical force would have commanded the rally to continue if yields happened to close at 2.149%.  These technical levels are merely the best candidates among their peers when it comes to benchmarking the progress of the recent bond rally.  One could argue that it doesn't much matter given that yields are not only still very much inside that rally trend, but also in the most central zone of the broader trend.

2017-6-19 Open 2

The chart above offers perspective (i.e. it shows our position in the downtrend and the fact that we just made new lows).  The following chart speaks to the  prioritization of concern.  In light of the chart above, perhaps we should be less concerned with "how good can this rally get?" and more concerned about a potential bounce.  After all, 2 of our key  correlated indicators have already bounced above their lowest pivot points of 2017 (teal lines below).  They're also trend higher since mid-April.

2017-6-19 open

Bottom line, a defensive strategy makes sense at the moment--one in which we're tuned in to related markets to offer cues about broader trends, and where we're more worried about threats to the trend than we are excited for developments that reinforce the trend.  With that in mind, this week begins with 2.17% and 2.21/2.22 as the most important technical levels overhead.  If we remain under one or both of those, it would be a good start.  Just to keep things interesting, yields quickly rose this morning to begin the week just under the 2.17% level.

There is very little on the economic/event calendar this week.  It remains to be seen whether that means we'll get an unobscured glimpse at trading sentiment or merely a low-volume endurance challenge for traders simply hoping to coast through.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
103-03 : -0-03
10 YR
2.1670 : +0.0100
Pricing as of 6/19/17 9:38AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Wednesday, Jun 21
7:00 Mortgage Market Index w/e 442.6
7:00 MBA Purchase Index w/e 254.6
7:00 Mortgage Refinance Index w/e 1494.8
10:00 Exist. home sales % chg (%)* May -0.5 -2.3
10:00 Existing home sales (ml)* May 5.55 5.57
10:30 Crude Oil Inventory (ml) w/e -1.661
Thursday, Jun 22
8:30 Initial Jobless Claims (k) w/e 240 237
9:00 Monthly Home Price yy (%) Apr 6.2
9:00 Monthly Home Price mm (%) Apr 0.6
Friday, Jun 23
10:00 New home sales-units mm (ml)* May 0.597 0.569
10:00 New home sales chg mm (%)* May 5.4 -11.4