Bonds are starting out in weaker territory this morning, mostly due to European trading hours.  An improving US/China trade dialogue has been the default explanation for any uptick in stock prices and bond yields recently.  Irresponsible or lazy journalists/analysts simply observe the market movement and tack on "as trade tensions flare" in the case of a risk-off move or "as trade tensions ease" in the case of the opposite.

I've seen plenty of that garbage this morning, but none of the underlying headlines--at least none that coincide with the market movement.  In fact, bonds were mostly flat during Asia-only market hours and didn't start losing ground until European trading began. 

20190909 open 

In order to make a case that the overnight move is tied to any specific event, we'd need to choose between weaker German economic data or stronger UK data.  "How would weaker German data hurt the bond market?" you might ask.  Simply put, the country is increasingly talking about FISCAL (not monetary) stimulus.  Fiscal stimulus doesn't have the same bond-bullish connotations because it doesn't involve QE-style bond buying promises or central bank rate cuts.

Because of this, weak German data and strong UK data can actually have a similar impact, but I think there's an even more plausible explanation.  Quite simply, bonds had a stellar August and moved to extreme levels on several fronts (record low EU yields, near-record US yields, 1st curve inversion in more than decade, record low US 30yr yields) and it would make sense to see a bit of a correction/consolidation.    Frankly, we expected to see a bigger correction happen sooner.  The ongoing strength has been an impressive reminder that markets frequently do whatever they must in order to prove the most obvious conclusion isn't quite right. 

The uncertainty surrounding this week's ECB announcement and the important line up of supply in the US bond market (3/10/30yr auctions and lots of corporate debt) only add to the case for the present technical correction at the start of the week.  There are 2 key levels that will help us label the severity of the situation.  Any 10yr yield under 1.62% is actually very friendly.  This has been an important pivot point that acted as a floor in early August but has been almost exclusively a ceiling since then.  For what it's worth, the confirmation zone for a break above 1.62 would top out at 1.66% due to high-volume highs from 8/23.  In other words, if yields break over 1.62, it may not be treated like a confirmed technical shift unless they continue higher through 1.66.  

After that, 1.80% is the next major dividing line marking the start of August's trading range.  It was the first ceiling we saw as yields thundered lower in early August and then corrected for 4 days on Fed week (announcement on 8/21 and Jackson Hole on 8/23).

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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
101-24 : -0-05
10 YR
1.6100 : +0.0600
Pricing as of 9/9/19 9:10AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, Sep 10
13:00 3-Yr Note Auction (bl) 38
Wednesday, Sep 11
7:00 MBA Purchase Index w/e 242.6
7:00 Mortgage Refinance Index w/e 2367.2
8:30 Core Producer Prices YY (%)* Aug 2.2 2.1
10:00 Wholesale inventories mm (%) Jul 0.2 0.2
13:00 10-yr Note Auction (bl)*
Thursday, Sep 12
8:30 Core CPI (Annual) (%)* Aug 2.3 2.2
8:30 Jobless Claims (k) w/e 215 217
13:00 30-Yr Bond Auction (bl)*
Friday, Sep 13
8:30 Retail Sales (%)* Aug 0.2 0.7
8:30 Retail Sales (ex-autos) (%) Aug 0.1 1.0
8:30 Export prices mm (%)* Aug -0.2 0.2
8:30 Import prices mm (%)* Aug -0.4 0.2
10:00 Consumer Sentiment Sep 90.9 89.8
10:00 1yr Inflation Outlook (%)* Sep 2.7
10:00 5yr Inflation Outlook (%)* Sep 2.6
10:00 Business Inventories (% ) Jul 0.3 0.0