MBS Day Ahead: Rates Increasingly Threatening Lift-Off


In the day just past, bonds traded to their highest yields in more than a week–something that hasn’t been too common in the past few months.  In fact, yesterday was the most prominent example since mid-April.  The culprit was a deescalation of trade war fears as they relate to Mexico, but the technical landscape is just as relevant (i.e. bonds have been decisively overbought for several weeks AND trading at the lowest yields in nearly 2 years).

In the day ahead, we’ll digest one of the lesser inflation reports in the form of the Producer Price Index.  This doesn’t typically move markets unless it falls quite far from the consensus. Today’s year-over-year core forecast is for a decline to 2.3% from 2.4% previously.  We’ll also get the first of the week’s Treasury auctions in the form of 3yr notes.  Tomorrow’s 10yr is definitely a bigger market mover, but every little bit of demand information will help flesh out bonds’ ability (or inability?) to hold ground.

In the bigger picture, momentum metrics are finally starting to shift as 10yr yields broke above 2.147 late yesterday and continued higher overnight.  The next major line in the sand is 2.19%.  Breaking above that ceiling would also likely coincide with a shift in longer-term momentum metrics.  

2019-6-11 open

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