In the week just passed, the bond market rallied strongly.  Weaker economic data--especially the two ISM reports--led the way, ensuring the middle 3 days of the week did most of the rally's heavy lifting.  Momentum suddenly flattened out on Friday after an interestingly mixed jobs report, but yields nonetheless managed to move lower over the course of domestic trading hours.  Overall, the gains went a long way toward completely erasing the harsh, corrective sell-off seen in early September.

In the week ahead bond traders will ask themselves if it's time to push rates a bit higher again purely for technical and tactical reasons.  On the technical side of the equation, last Friday capped the 2nd instance of a 7-day rally in rates.  While there's no hard and fast rule, consecutive days of gains become significantly harder to sustain after 7 days, with streaks of 8 days or more only happening almost never (October 2014 was the last time).  7-day streaks are lucky if they happen more than 6 times a year.  This increases the odds that the week will begin in challenging fashion for bond bulls.

20191007 open

The economic and event calendar only complicates the outlook.  In terms of econ data, the most significant report is Thursday's Consumer Price Index, which has recently been running a bit hot.  Last month's core reading matched the post-crisis highs at 2.4%.  We know the Fed tends to favor the PCE inflation data which is a bit tamer by comparison, and that they are willing to let inflation run over 2% anyway as a part of the "symmetric target" mentality, but traders will quickly begin to question the Fed's resolve if CPI happens to tick higher again.  

In terms of other events, this is an auction week for 3, 10, and 30yr Treasuries.   It's not uncommon for bonds to experience a bit of weakness ahead of the auction cycle as primary dealers will be forced to submit bids on auction day.  Combine this tactical weakness with the implication of the "7-day rule" seen above and the odds are stacked against an early-week rally.  The future is always uncertain, however, so the better conclusion would be to say that an early-week rally would be more impressive and more meaningful than any other random show of force.

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
101-29 : -0-01
10 YR
1.5460 : +0.0320
Pricing as of 10/7/19 9:21AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, Oct 08
8:30 Core Producer Prices YY (%)* Sep 2.3 2.3
8:30 Core Producer Prices MM (%)* Sep 0.2 0.3
13:00 3-Yr Note Auction (bl) 38
Wednesday, Oct 09
7:00 MBA Purchase Index w/e 263.8
7:00 Mortgage Refinance Index w/e 2202.6
10:00 Wholesale inventories mm (%) Aug 0.4 0.4
13:00 10-yr Note Auction (bl)*
Thursday, Oct 10
8:30 Core CPI (Annual) (%)* Sep 2.4 2.4
8:30 Consumer Price Index (CPI) (%)* Sep 0.1 0.1
8:30 Jobless Claims (k) w/e 219 219
13:00 30-Yr Bond Auction (bl)*
Friday, Oct 11
8:30 Import prices mm (%)* Sep 0.0 -0.5
8:30 Export prices mm (%)* Sep 0.0 -0.6
10:00 1yr Inflation Outlook (%)* Oct 2.8
10:00 5yr Inflation Outlook (%)* Oct 2.4
10:00 Consumer Sentiment Oct 92.0 93.2