Is the decades-long bull market in bonds over?  I imagine we'll be talking about this sort of thing every time yields spike to multi-month highs and even every time they spike aggressively after hitting multi-month lows.  

It's a bit of an unfair conversation.  As long as you are capable of understanding that rates can't go perpetually lower, you will have a big leg up on anyone who asks you "is it over?"  It was never going to last forever in the first place!

Let's back up a bit and talk about what's going on in the short term.  Simply put, we were hoping to see 10yr yields bounce at a ceiling of 2.60%.  We were somewhat optimistic about that after seeing Tuesday's candlestick break lower from the upper Bollinger Band line seen in the following chart, but with plenty of "yeah buts" (revisit the corresponding commentary to see them).

If you don't click the link above, here are a few highlights:

Even if this doesn't turn out to be a false positive, there's really no major implication as to how long the bounce would keep yields under current levels. In other words, the signal could accurately predict that yields remain lower tomorrow (or for a few days beyond) only for a new sell-off to take shape in the near future.

As has been the case since late December, the best threshold we could hope to cross below would be 2.42% in 10yr yields. That's fairly out of reach this morning, but that's where we'd need to go in order for this fledgling rally effort to become meaningful in the bigger picture. In the short-term, any sustained break below 2.52 would be a good step in the right direction. Conversely, a failure to break below 2.52% would quickly suggest the 'false positive' scenario discussed above.

Unfortunately, bonds have ticked all the boxes in the "caveat" column since I wrote that.  We did indeed have a clear bounce at 2.52% and we are indeed seeing a sell-off after yields held in lower territory for only a day.

2018-1-18 open

Back to the first question now. 

2018-1-18 open2

Breaking above the upper yellow line in this chart would be a much bigger deal.  For now, breaking to the highest levels in 9 months is still a pretty big deal.  Any time we're at new long-term highs, it's good to remain defensive until a more definitive correction takes shape.

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
101-19 : -0-04
10 YR
2.6071 : +0.0291
Pricing as of 1/18/18 9:35AMEST