Bond traders are like my 10yr old.  If you give them plenty of information to consider and if you lay out the right set of challenges, they're much more likely to stay on task in a relatively predictable way, or at least in a manner that can be reconciled in hindsight.  But if you remove the intellectual stimulation and the options for channeling their energy, things can get weird.  

For my 10yr old, the attempt to channel inspiration-deprived energy might mean using way too much packing tape and recycled cardboard to build one of any number of things (I've seen robot suits, car ramps, ninja weapons, telescopes, just to name a few).  For traders, the attempt to channel inspiration-deprived dollars might mean turning to technical analysis.  In other words, at a certain point, if there's not much else left to do, they do weird stuff.

Technical analysis isn't actually too "weird."  It's just a bit esoteric.  The bigger issue is that it operates under the guise of scientific principals that suggest certain levels of probability.  It would be dangerous to get too comfortable with that apparent probability, even if you think you've seen the same thing happen several times in a row.  When it comes to financial markets and 10yr olds, something different can always happen.

At the moment, however, technicals are telling traders generally what we expected based on last Monday's breakout in bonds.  That's when 10yr yields broke away from the upper Bollinger Band (one of those esoteric mathematical constructions designed to predict the future) as seen in the chart below.  We'd been waiting for that break as an indication of a shift in momentum.  On that note, so far so good.

We've since moved on to break below the middle Bollinger Band.  To me personally (did I mention that technicals are open to personal interpretation?), the middle band tends to be less meaningful on any given day.  We might spend a few days below only to bounce higher, or we might spend a few days bouncing against it as a ceiling only to continue lower in yield.  If we do continue lower, 2.28% is the next technical target based simply on past precedent.  It's been tremendously well-traveled--both a ceiling and a floor--all year.

2017-11-7 open2

The technicals leave room for that move down to 2.28%, both because it wouldn't be pushing the lower Bollinger Band (something that would take some serious motivation) and because it wouldn't be driving longer term momentum to overbought levels (the lower green line at the bottom of the chart, which would also tend to line up with more serious motivation).  On the other side of the coin, a move above 2.35-ish (could be 2.34-2.37, really) could trigger a shift back to weaker levels.  

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 : -0-01
10 YR
2.3181 : -0.0019
Pricing as of 11/7/17 9:04AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, Nov 07
13:00 3-Yr Note Auction (bl) 24