At our lowest point so far this AM, the 4.5 touched levels around 99-20 when one includes the more outlying type trades that we tend to see courtesy of our robust data. Smoothing out some of the spikes and going with the bulk of the trading, 99-22 is a better measure. Since those lows we made it back up to 99-26 and are currently at 99-24. Whatever the case, one definitely gets the sense of "bottoming" when looking at the last few hours of action.
It's the same story for stocks and bond yields, except the "bottoming" vibe would be more like "topping out." And though we certainly hope that's the case, it could go either way. Additionally, tomorrow is packed with data including tsy refunding announcements. Either it's been baked in "enough," or there is more potential weakness ahead. As far as today is concerned though, at least a small flicker of hope might be gleaned from the previously discussed levels at which we are rebounding in MBS...
What's significant about that "long term positive trend-line?" In short, it has not been violated by a closing price level in about two months. Considering the extent of our lower-price higher-volatility misery is barely three months old, it's one of the most tested trends in this post-exuberance / summer doldrums epoch... You can get a better idea of this if we zoom out to a wider view. Also note that the first band of resistance we encountered this AM in the 10yr was at 3.70 and the highs of the day turned around exactly at our recent high from late July. Considering this level also has not been broken for nearly two months, this is an important one...
Stocks are near unchanged on the day which is giving fixed income a bit more a vacuum to operate in today, at least insofar as it's devoid of the stock lever. With quarterly refunding announcements, NFP Friday, settlement and the like, the rest of the week and the week that follows is anything but a vacuum. Sept futures contracts on the 10yr are hanging on to the 116(ish) level still which speaks to more sideways and rangebound action until data and/or events deflect the course of prices...
Tonight and tomorrow is a classic lock/float scenario... There is no technical suggestion on directionality, and the movement we do see will at least be catalyzed by data points if not dictated by them. Like AQ said, the reflation is happening and the connection between data and prices slowly being reestablished. It's going to be a tricky couple of days with this occurring in conjunction with a busy calendar. If you're floating now, I'd keep going intraday (NOT INTER-day) unless we break the trendline and/or 99-21 at this point.
The decision to keep going overnight depends on your level of risk tolerance and your sentiment on the data calendar items ahead. Just keep in mind that the mere ANNOUNCEMENTS of tsy supply have, of late, been more damaging than the auctions themselves. If the recovery steamroller keeps getting support from data, things could get ugly. Also ask yourself if the potential gains are necessary given that we're within an eighth of PAR on the 4.5... Could things shoot higher? Sure, especially with a surprise retracement in NFP, but big picture, err on the side of caution until more of the chips are down.
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