2018 has seen the most unpleasant start to a new year since 2009 as far as bond markets are concerned.  The big sell-off in 2009 is easier to reconcile as a correction to an even sharper move to lower yields as the financial crisis officially hit Treasury yields. 

This time around, the selling is occurring in a much scarier way.  Whereas 2009 marked a correction to a longer-term downtrend, 2018 is more of an acceleration of a preexisting uptrend.

2018-2-12 open2

In the shorter-term, the momentum has been fairly relentless.  The pace has been fairly gradual compared to other moves of equal size.  That's bad.  Gradual moves tend to have more staying power. 

Although bounces can materialize any time, there's no solid indication of that happening just yet.   Just last week, 2.885 emerged as a potential ceiling (2 big bounces on Monday and Thursday) and was quickly broken in this morning's overnight trading.  Momentum indicators have yet to give a positive signal and yields themselves have yet to meaningfully test the lower boundary of the trend channel (the upwardly sloped lines seen in the following chart).

2018-2-12 open

With all of the above in mind, this week is just another opportunity to see how much staying power this negative trend really has.  Wednesday could be particularly interesting with the release of the Consumer Price Index (CPI), which is currently the most important piece of economic data on any given month.  The most informative and disconcerting reaction would be a weak CPI reading followed by a knee-jerk rally that then gives way to more selling.  That would be the worst case scenario in terms of implications for the bigger picture.  Conversely, an eventual rally that follows stable or stronger CPI would suggest bonds are increasingly ready to hold their ground near current 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
99-25 : -0-05
10 YR
2.8603 : +0.0293
Pricing as of 2/12/18 9:38AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Wednesday, Feb 14
7:00 Mortgage Market Index w/e 416.3
8:30 Retail Sales (%)* Jan 0.2 0.4
8:30 CPI mm, sa (%)* Jan 0.3 0.1
8:30 Core CPI Year/Year (%)* Jan 1.7 1.8
10:00 Business Inventories (% ) Dec 0.3 0.4
Thursday, Feb 15
8:30 Producer Prices (%) Jan 0.4 -0.1
8:30 Philly Fed Business Index * Feb 21.1 22.2
8:30 NY Fed Manufacturing Feb 17.50 17.70
8:30 Core Producer Prices YY (%)* Jan 2.1 2.3
8:30 Jobless Claims (k) w/e 230 221
9:15 Capacity Utilization (%) Jan 78.0 77.9
9:15 Industrial Production (%) Jan 0.2 0.9
10:00 NAHB housing market indx Feb 72 72
Friday, Feb 16
8:30 Export prices mm (%)* Jan 0.3 -0.1
8:30 Import prices mm (%)* Jan 0.6 0.1
8:30 Housing starts number mm (ml)* Jan 1.234 1.192
8:30 Building permits: number (ml)* Jan 1.300 1.300
10:00 5yr Inflation Outlook (%)* Feb 2.5
10:00 Consumer Sentiment Feb 95.5 95.7
10:00 1yr Inflation Outlook (%)* Feb 2.7