I know I made a Looney Tunes reference last week, but another one is in order.  For those that aren't familiar, Yosemite Sam is stranded on a desert island and sits down to a smorgasbord of coconuts, prepared in various ways: "tossed coconut salad, fresh coconut milk, New England boiled coconut," he says, feigning excitement just before breaking down and proclaiming "oooh I hate coconuts!!!!" 

Yosemite Sam's coconut menu plan is akin to trying to find a way to make something new and interesting out of summertime bond market movement.  The fact is that at some point in June or July, almost every year, bonds end up either pausing or reversing, and volumes generally begin declining in July, finally bottoming out in September, almost like clockwork.

2018-7-13 open3

In the chart above, the circled volume bars are all September.  While volume doesn't allow us to predict the future, it does help build the sense that the summer trading months generally aren't associated with big moves and lofty trading goals.  There are exceptions, depending on the events at hand, and there is certainly a fudge factor when it comes to events that are immediately juxtaposed with the summertime slowdown.

All we can know right now is that we are in the thick of one of these summertime slowdowns.  This time around, it arguably began as early as April.  But the most recent manifestation--the narrow range between 2.825 and 2.885 has been the starkest indicator.

2018-7-13 open2

Incidentally, because of the points laid out above, we can't really expect too much follow-through this time around, even after several of these technical lines are broken.  That's not to say we couldn't see it, just that if the breakout happens in July, follow-through isn't as likely as it would be if the same scenario were playing out in late September.

One final caveat: markets have a way of surprising us the most just when we think past precedent suggests the clearest truths.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 4.0
101-31 : +0-03
Treasuries
10 YR
2.8363 : -0.0167
Pricing as of 7/13/18 10:18AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Friday, Jul 13
8:30 Export prices mm (%)* Jun 0.2 0.6
8:30 Import prices mm (%)* Jun 0.1 0.6
10:00 5yr Inflation Outlook (%)* Jul 2.5
10:00 1yr Inflation Outlook (%)* Jul 2.8
10:00 Consumer Sentiment Jul 98.2 98.0