Wednesday's rally offered hope after the BOE stepped in with emergency bond buying.  The overnight session that followed painted a slightly less hopeful picture.  Yields were flat to slightly higher in Asia, but then sharply higher after record inflation readings in Germany's biggest region.  The UK continues to double down on the fiscal policy that sparked the recent weakness, but the BOE's response gave the market enough reassurance to proceed cautiously from recent ceilings.  What we're left with is a rate landscape that is much higher than last week, but no longer stampeding over 4% 10yr yields.  Dare we say "data dependent?" 

As rates attempt to move down from recent ceilings, there are a few milestones that help measure progress.  The first of these is only in its early stages of becoming visible, but for the first time in a long time, stochastics are starting to inch below oversold territory (bottom of the following chart).  As we often discuss, there's no crystal ball here.  Technicians assign different meanings to this type of movement.  Some care about the break of the oversold line.  Others want to see stochastics break below the mid-point between overbought and oversold.  Either way, the break we're seeing so far is late and inevitable, so I'm not reading too much into it.

Better milestones would be breaks below simple technical levels from trendlines and pivot points.  The yellow line would still be a good target to signify a shift.  The pivot point of 3.714-ish is also emerging as a relevant line in the sand after yesterday's rally.

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On a mortgage-specific note, we continue fielding continuous questions about MBS coupons.  For those on, we continue offering the reminder that the most relevant coupon is the one with the big gold star next to it.  For those not on, it's UMBS 5.0.  Anything higher is still very 20220929 open2.png