• Bonds have stayed strong, despite apparent headwinds
  • Technicals suggest we're due for a bounce
  • Such a bounce could still be part of a broader, positive theme
  • We could be waiting a while to find out if it's negative

Welcome to the 3rd week of May.  Bond markets are faced with a fairly tough decision.  They'll either have to begin the process of 'correcting' toward higher yields, or they'll have to break some fairly serious lines in the sand.  

The lines in question have to do with the "consolidation" trends we've been tracking in 2016.  There is a short and a long term version seen in the chart below. 

2016-5-16 Consolidation

As the chart shows, the cadence of the short term (upper) portion of the chart suggests we're at some risk of bouncing higher in the short term.  Until proven otherwise, the default "bad" scenario would be a move to revisit the longer term boundaries in the lower section of the chart.  This would manifest itself as another run toward the 2% range in 10yr yields, if it happens.

This week's data has some chance to help inform this struggle.  The first significant data of the week arrives Tuesday morning in the form of the Consumer Price Index.  Then on Wednesday afternoon, we'll get the minutes from the most recent Fed meeting, which could shed light on the Fed's rate hike prospects in June and beyond.  This is a risky piece of news for bond markets because the takeaway from that meeting was "bond-friendly."  As such, if the Minutes bring any new info to light, it's more likely to be unfriendly to bonds (i.e. painting a picture of the Fed being closer to hiking rates again than the late April Announcement suggested).

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
102-20 : -0-05
10 YR
1.7330 : +0.0280
Pricing as of 5/16/16 9:01AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Monday, May 16
8:30 NY Fed manufacturing * May 6.50 9.56
10:00 NAHB housing market indx * May 59 58
Tuesday, May 17
8:30 Housing starts number mm (ml)* Apr 1.129 1.089
8:30 Core CPI mm, sa (%)* Apr 0.2 0.1
8:30 CPI mm, sa (%)* Apr 0.3 0.1
8:30 Building permits: number (ml)* Apr 1.130 1.076
9:15 Industrial output mm (%) Apr 0.3 -0.6
9:15 Capacity utilization mm (%) Apr 75.0 74.8
Wednesday, May 18
7:00 Mortgage Market Index w/e 490.5
14:00 FOMC Minutes *
Thursday, May 19
8:30 Philly Fed Business Index * May 3.3 -1.6
8:30 Initial Jobless Claims (k)* w/e 275 294
Friday, May 20
10:00 Existing home sales (ml)* Apr 5.40 5.33