Bonds gave us quite a scare last week as key technical ceilings gave way.  High volume and concrete fundamental justification added validity to the move.  Combine that with the massive size and old age of the 2019 rally and there was more than just a small reason to be concerned.  To be very clear, there are still reasons to be concerned about a potential big-picture shift that may be in the works, but we can at least entertain the possibility that such a shift has yet to be confirmed.  

I keep going back to 2011 as the best example of similar behavior in the bond market.  For several weeks now, it has been the precedent that lets us know bonds could rally even more, or undergo only a mild correction before embarking on another rally trend.  If we examine 2019 vs 2011 with a long-term modified moving average (chosen because it was the lowest possible line that contained both of the corrective spikes following the initial 2011 rally), we see that it would be far too soon to count the 2019 rally out.

20191114 open

What was up with last week's seemingly unstoppable weakness then, and why are we suddenly able to erase it in the space of 2 days?  I'm going to approach that question with a very simplistic thesis--one that I suggested several times last week but hadn't seen enough evidence for until this morning.  Last week could have simply been a factor of defensive trader positioning ahead of a 3-day weekend (and with a huge corporate bond deal waiting on the other side).   As of yesterday morning, the corporate bond deal is done having its impact and a slew of other corporate offerings were priced.  Powell's testimony was innocuous and Trump's speech was uneventful.  Perhaps it's really as simple as saying there were reasons to put the guard up on Thu/Fri last week and now there are reasons to let the guard down.  The "guard up/guard down" trading days correspond to the two highlighted sections below.

20191114 open

Bottom line: temporary factors (i.e. 3-day weekend, biggest corporate bond of the year, Fed testimony, Trump speech, and whatever else) argue a case for "making excuses" for the range breakout last week.  The quick return under the range boundary these week adds to the case.  

So should the range get a do-over?  That's a tough call.  I don't think it makes sense to do anything but answer that question one day at a time.  2011 similarities aside, this is still a very old, very big rally, and the risk remains that it has already shifted gears despite pockets of decent positive momentum.  More room for hope?  Sure.  But not at the expense of complacency.

Today brings another round of Fed Chair Powell testimony which almost certainly promises to be uneventful (but you never know).   Econ data has come and gone with no effect to speak of.  Additional Fed speakers pepper the rest of the day's agenda, but they'd be hard-pressed to say anything new or interesting.  Bonds seem more keen to trade on technicals and momentum (and to follow their friends).

20191114 open

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
101-07 : +0-06
10 YR
1.8270 : -0.0420
Pricing as of 11/14/19 9:30AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Thursday, Nov 14
8:30 Core Producer Prices YY (%)* Oct 1.5 2.0
8:30 Jobless Claims (k) w/e 215 211