We've talked a fair amount about the balance between fundamental and technical analysis recently.  These are the two main schools of thought when it comes to understanding and predicting market movement.  Fundamentals are the things that are happening out in the world that should likely have an impact on markets (econ data, covid numbers, Fed policy, etc.).  Technicals are the trendlines and equations applied to market movement regardless of fundamentals.

With questions rising (or at least not going away) about our nation's ability to control the spread of coronavirus, millions of people still out of work, and significant bond market support from the Federal Reserve, it makes fundamental sense to see bond yields in a low volatility downtrend.  Given that there's a chance that covid metrics are merely responding to decreased quarantine measures and that there's hope for improvement, AND that another round of stimulus is apparently on the way, it makes sense for bonds not to get too far ahead of themselves with respect to the rally trend.  

The technical approach is generally corroborating the cautious improvements and acknowledging the risk of resistance.  There are a few different ways to look at "resistance" but the simplest methods involve straight lines at key levels on the chart.  Horizontal lines define "the range" and the diagonal lines define "the trend."

20200723 open3.png

Some liberties can be taken in setting these lines--especially when it comes to trend lines.  For instance, should we use the absolute highs and lows of any given trading day?  Or should we focus more on the daily closing yields?  How about focusing on the levels that most frequently see bounces/highs/lows?  For instance, if we disregard some intraday noise and focus just on closing lows, we see an even narrower trend with the exact same slope inside the broader trend.  Over the past 2 days it too has coincided with the .58% floor.

20200723 open2.png

Today will be all about this battle with these two floors.  With yields already pressing the issue out of the gate (10yr at .576% at the moment), it should be an interesting one--relative to the recently narrow ranges.  Ultimately, the potential breakout only matters to the extent that bonds do something interesting after making an attempt.  "Interesting" in this context would be one of two things: a big obvious bounce back toward higher yields or an acceleration of the recently positive momentum. 

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
UMBS 2.0
103-02 : +0-04
10 YR
0.5790 : -0.0160
Pricing as of 7/23/20 9:05AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Thursday, Jul 23
8:30 Continued jobless claims (ml) w/e 17.067 17.338
8:30 Jobless Claims (k) w/e 1300 1300
13:00 10-yr Note Auction (bl)* 14