Bonds had a rough week last week, more than fully erasing the rally they enjoyed as stocks sold-off in the previous week.  Today's first chart shows that bonds were quick to turn tail and head back toward previous levels, relative to the bounces seen in stocks and European bonds.  In other words, the yellow line moved back up the quickest.

2018-11-5 open

Does this mean that bonds are simply predetermined to have a bad time these days?  Not entirely.  Part of the problem with the first chart (and indeed, with any chart that automatically scales the y-axis such that overlaid lines occupy the same vertical space) is that the relationship between the lines can look vastly different if we adjust the time frame.  For instance:

2018-11-5 open3

This second chart suggests that Treasuries were never all that keen to rally in the first place--something we discussed fairly often over the past 2 weeks.  Hindsight brings an important roadblock into focus.  At first, 3.11% looked like the number to beat, as those were the highest yields seen in late September.  But pivot points don't often turn out to be quite so perfect.  Now that yields have moved convincingly higher, 3.09% looks like a better level to watch.  It saw more bounces than any other level at the times when yields were at their lows/highs during these past two swings.  It could be considered the "neckline" of tiny head&shoulders patterns.

2018-11-5 open2

What does this all mean for the week ahead?  Essentially, bonds are in a rundown between long-term highs at 3.26 and the pivot point we just made a case for at 3.09.  If one of those levels is broken this week, it would have  reasonably strong implications for the next dose of momentum.  In other words, if 3.26 is broken, brace for even higher rates ahead, but if 3.09% is broken, keep your fingers crossed for a more prolonged consolidation.  

As for the events that will inform this battle, this week's Treasury auctions have a somewhat elevated importance due to currently high yields and newly increased auction amounts.   They'll provide a good barometer for the extent to which investors are willing to "buy the dip" in bond prices.  Then of course there are mid-term elections, and while there's no way to know exactly how much bonds might react to such things, we can at least know that a reaction is possible (i.e. it introduces additional potential for volatility).

Thursday brings a Fed Announcement, but this is an "off the run" version (without a press conference or updated set of economic projections).  Markets have come to assume that the off-the-run announcements are toothless, and this one is no different.  That doesn't mean the Fed couldn't decide to surprise us--just that it probably won't.

But before any of those events, we'll have ISM Non-Manufacturing to kick off the week's econ data at 10am this morning.  ISM data isn't always a market mover, but apart from NFP, it has higher market movement potential than most other reports.


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
99-21 : +0-03
Treasuries
10 YR
3.1989 : -0.0151
Pricing as of 11/5/18 8:55AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Monday, Nov 05
10:00 ISM N-Mfg PMI * Oct 59.3 61.6
10:00 ISM N-Mfg Bus Act * Oct 64.5 65.2
13:00 3-Yr Note Auction (bl) 37
Tuesday, Nov 06
13:00 10-yr Note Auction (bl)* 27
Wednesday, Nov 07
7:00 Mortgage Refinance Index w/e 884.2
7:00 MBA Purchase Index w/e 224.9
13:00 30-Yr Bond Auction (bl)* 19
Thursday, Nov 08
8:30 Jobless Claims (k) w/e 214 214
14:00 FOMC rate decision (%)* N/A 2.125 2.125
Friday, Nov 09
8:30 Producer Prices (%) Oct 0.2 0.2
8:30 Core Producer Prices YY (%)* Oct 2.3 2.5
10:00 Wholesale inventories mm (%) Sep 0.3 0.3
10:00 1yr Inflation Outlook (%)* Nov 2.9
10:00 5yr Inflation Outlook (%)* Nov 2.4