Before it even began, today was set to be a challenge for bond markets.  As discussed in an earlier update on MBS Live, Treasury yields rose sharply in the overnight session with the most common justification being today's imminent announcement of Trump's tax reform plan.  But the fact that stocks haven't taken part in the move to nearly the same extent--not to mention the slightly bigger move seen in European bond markets--suggest tax reform isn't the only story today.

Nonetheless, it's the story that nearly every market participant is discussing.  Details have been leaked to such an extent that the announcement itself could be fairly anticlimactic.  Not only that, but the trading day will be nearly over before Trump even begins his speech in Indianapolis (Air Force One scheduled to arrive at 2:30pm).  Separate headlines suggest congress will unveil details at 2:15pm, however.

Without being able to pin down a full list of the bond market's motivations, we're left to focus on technicals.  At the moment, they're unfriendly, with a big break over the 2.28% level that currently serves as a lock-trigger for most anyone who'd been floating so far this week.

Past precedent suggests the 200-day moving average can be supportive in the bigger picture.  After breaking below it in 2014, yields rose to test it in July and September of that same year, and bounced lower on both occasions.  Even if yields rise no more today, we've already essentially tested it with a high of 2.314 vs the moving average level at 2.328. 

The bottom line is that the magnitude of overnight selling has quickly changed the outlook for bonds.  Whereas we had been sideways to slightly stronger following the September sell-off, the weaker momentum this morning makes the past few days look like a mere pause in that same sell-off.  We would need to see a strong show of support here--one that brings yields back below 2.28 at least--in order to question the bearish signals seen today.