We'll get to the good news in a moment.  Bad news is obviously the order of the day as bonds are starting out with a big break through important technical ceilings. 

What's a technical ceiling?  MBS Live members can always read up on knowledge base definitions in one of several articles on the topic: here, here, and here, but the shortest definition is "any price or yield level that has more often caused approaching yields to bounce as opposed to break through."  It's largely a function of past precedent and in order to discuss today's relevant ceilings, we'll have to go back into the past a bit farther than we might like.

The most recent precedents above 2.42 require a trip to March 2017, where we see 2.5 and 2.63 come into play.  Before that, we'd have to go all the way back to mid-2015 to see the last major show of support near those levels.  At that time, it was 2.47% that held its ground the best in terms of closing yields.  This was the reason for me listing 2.47% in the technical ceilings in yesterday's Huddle (our awesome bullet point and video breakdown of everything you need and nothing you don't.  MBS Live members make sure you're set up to receive the Huddle HERE).

The following chart shows the 2.5 and 2.63 (as well as the 2.42% level we just broke through) in medium and long-term time frames.  There's a ton of relevant movement around these levels!

2017-10-25 open2

How about that good news now?  The good news is that the higher yields go, the more traders will think and talk about "buying the dip" in bond prices.  There's an attractive entry point at some magical level overhead.  Traders are definitely not of the same mindset as some of the pundits you hear on TV saying that rates will go higher and higher from here. 

We need sustained core inflation over 2% to occur in an environment where the Fed is continuing to remove accommodation in order for a significant move higher (think "over 2.63%") in the bigger picture.  While it wouldn't be pleasant if yields have to as high as 2.63% to find buyers, it would still send a powerful message about the long-term prospects for bonds.  This isn't an endorsement to float amid the current confirmed uptrend--just some perspective and some hope for a potential bounce.  First and foremost, however, this trend is not your friend until it does something to offer proof to the contrary.

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
102-10 : -0-06
10 YR
2.4553 : +0.0493
Pricing as of 10/25/17 9:47AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Wednesday, Oct 25
8:30 Durable goods (%)* Sep 1.0 2.0
8:30 Nondefense ex-air (%)* Sep 0.5 1.1
9:00 Monthly Home Price yy (%) Aug 6.3
9:00 Monthly Home Price mm (%) Aug 0.2
10:00 New home sales-units mm (ml)* Sep 0.555 0.560
10:00 New home sales chg mm (%)* Sep -0.9 -3.4
13:00 5-Yr Note Auction (bl)* 34