MBS Day Ahead: If Economic Slow-Mo Train Wreck Continues, Bonds Will Make Popcorn


Nothing like a good tragedy for lighthearted mid-week viewing as far as bond markets are concerned.  Various global economies’ data is growing ever weaker and now even at home the recent reports have bordered on troubling.  Several metrics in yesterday’s PPI were as bad as they’ve been in the history of this recently revised report.

Today will give us an opportunity to see if CPI follows suit.  This is the consumer-oriented version of inflation measurements that took place with yesterday’s producer-oriented PPI.  While it may be logical that price fluctuations at the producer level will filter their way through to the consumer, that’s not what we always see.  The only major market moving potential here is for CPI to come in similarly week.  Apart from that, the other key release is Philly Fed at 10am.  Neither of these are headliners in and of themselves, but with bears building  a case for a broader downturn and with bulls hoping for evidence to the contrary, every little piece of even moderately meaningful data is important.

Not only is is simply an interesting commentary on the bigger picture, but bonds are simply on the edge of a more profound move–as are stocks for that matter.  After getting turned around late last week and trending negatively, bond market momentum is now back into positive territory, or very close to it, based on a few of the mainstream oscillators seen below (stochastics and MACD).

2015-10-14 10yr

The general sentiment about the Fed rate hike is “on the edge” as well.  2yr yields are a better proxy for Fed sentiment than 10yr yields and here we see a noticeably sober uptrend moving quickly to the lowest edge of its range boundary.  Any more “big surprises” like y4sterday’s data and it may well start the next friendly snowball for bond markets.

2015-10-15 2yr

Leave a Reply