For the bond market, almost the entirety of the 2nd half of 2019 was dominated by a consolidation pattern (a narrowing trend where periodic highs and lows in rates move closer  and closer together).  As recently as the beginning of last week, that consolidation trend was still very much intact, but it began to come into question after the gains inspired by US/Iran geopolitical tensions.

With bonds holding those gains over the weekend, we suddenly find ourselves in a situation where the boundaries of that consolidation are arguably being broken.  Granted, there are a few different ways to place the lower line.  For instance, we could opt to use a line that connects the greatest number of lows, or simply the lowest lows.  But in either case, those lines are now broken.  The only one that remains is the most conservative line that uses September's lows as a starting point even though the consolidation hadn't technically begun.

20200106 open2

This technical breakout is still in its infancy considering the first line was broken just last Friday and the next line is merely at risk of being broken today.  Still, it's a promising or at least hopeful way to start the first real trading week of 2020.

The other late-2019 theme that began to break down at the end of the year was the severe MBS underperformance that followed the massive trade-war bond rally in August.  In the following chart, the blue line tracks that underperformance.  The higher it moves, the worse MBS are doing compared to 10yr yields.  As expected, moderate, contained weakness in Treasuries plus the key ingredient of "time" paved the way for MBS to almost fully erase that weakness by the end of the year.

20200106 open

Bottom line, if you've been looking at day to day changes in MBS and Treasuries and wondering if MBS seemed to be doing better on a relative basis, you're absolutely right.

As for the week ahead, there are no significant economic reports today, but that theme changes tomorrow with several of the month's biggest-ticket reports coming out between then and Friday morning's nonfarm payrolls.  In addition to that, trade-related headlines remain relevant as the previously-announced Jan 15th trade deal signing date approaches.  Geopolitical developments are also potential market movers as the world waits for the next steps in the recent US/Iran drama.

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
101-26 : +0-03
10 YR
1.7670 : -0.0210
Pricing as of 1/6/20 9:41AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, Jan 07
10:00 ISM N-Mfg Bus Act * Dec 52.0 51.6
10:00 ISM N-Mfg PMI * Dec 54.5 53.9
13:00 3-Yr Note Auction (bl) 38
Wednesday, Jan 08
7:00 MBA Purchase Index w/e 250.1
7:00 Mortgage Refinance Index w/e 1859.0
8:15 ADP National Employment (k)* Dec 160 67
13:00 10-yr Note Auction (bl)*
Thursday, Jan 09
8:30 Jobless Claims (k) w/e 220 222
13:00 30-Yr Bond Auction (bl)*
Friday, Jan 10
8:30 Non-farm payrolls (k)* Dec 160 266
8:30 Unemployment rate mm (%)* Dec 3.5 3.5
10:00 Wholesale inventories mm (%) Nov 0.1 0.0