In the week just passed, bonds began to settle into a range after the sharp move lower in the previous week (driven by flaring trade tensions).  This settling process didn't truly emerge until Thursday.  Before that bonds rallied hard into Wednesday morning mostly on follow through from the week's early move (which was driven by China's "doubling down" response on Trump's tariff tweets). 

The follow-through brought a European component into the mix as German Bunds surged to new all-time lows.  A sharp bounce on Wednesday afternoon (right after European markets closed) set the stage for a complete reversal of the trend.  Thursday morning weakness added to the case but bond yields couldn't make it up and over 1.80% before the consolidation momentum kicked in.

In the week ahead, bonds will have an opportunity to build on that consolidation theme, which is seen in the yellow lines on the 10yr yield chart below.  This is definitely the most aggressive placement for the consolidation lines.  In other words, it's as narrow as we can draw them and it wouldn't be a surprise to see them broken even if the general sideways momentum continues.

2019-8-12 open

It will take a combination of moderately important developments or a single massively important development for the sideways momentum to be overtaken by something more directional.  The nice thing about the trade war narrative is that positive developments are harder to price because it's harder to know what the long-term effects will be (or if new terms will be honored as written).  Contrast this to every little escalation in tariffs and general trade tension which has been much quicker in translating weakness in the manufacturing sector and business confidence.  In other words, this is a comparative advantage for bond market bulls.

It may seem as if economic data has taken a back seat to trade war headlines, but rest assured, if several important reports start singing similar tunes, it's more than enough to  move the needle.  The only catch is that it's not just US data that matters in that regard.  Chinese and European data would need to concur.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
101-19 : +0-06
10 YR
1.6850 : -0.0490
Pricing as of 8/12/19 9:27AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, Aug 13
8:30 Core CPI (Annual) (%)* Jul 2.1 2.1
Wednesday, Aug 14
7:00 MBA Purchase Index w/e 247.9
7:00 Mortgage Refinance Index w/e 2003.0
8:30 Import prices mm (%)* Jul 0.0 -0.9
Thursday, Aug 15
8:30 Retail Sales (%)* Jul 0.3 0.4
8:30 Philly Fed Business Index * Aug 10.0 21.8
8:30 Labor Costs Preliminary (%) Q2 2.0 -1.6
8:30 NY Fed Manufacturing Aug 2.75 4.30
8:30 Jobless Claims (k) w/e 214 209
9:15 Capacity Utilization (%) Jul 77.8 77.9
9:15 Industrial Production (%) Jul 0.1 0.0
10:00 NAHB housing market indx Aug 65 65
10:00 Business Inventories (% ) Jun 0.1 0.3
Friday, Aug 16
8:30 Housing starts number mm (ml)* Jul 1.257 1.253
8:30 Building permits: number (ml)* Jul 1.270 1.232
8:30 Build permits: change mm (%)* Jul -5.2
10:00 5yr Inflation Outlook (%)* Aug 2.5
10:00 1yr Inflation Outlook (%)* Aug 2.6
10:00 Consumer Sentiment Aug 97.3 98.4