Bond markets continued pushing back toward recent long-term high yields today, and without any overt motivation. The overnight session saw European bonds paradoxically move lower in yield despite stronger economic data and generally positive Greece-related headlines. That’s the sort of paradox we can live with, but Treasuries weren’t buying it (literally).
10yr yields did allow themselves a bit of a rally with Europe, but a 6bp gain in German 10yrs was only good for a 3bp gain in US 10’s. After Germany bounced, so did Treasuries. US markets then took over as the pacesetter for the day.
The morning economic data was twice shunned. First up, weaker Durable Goods provided no benefit for the selling momentum. Then stronger New Home Sales data did no damage when bond markets were recovering from morning weakness at 10am. For what it’s worth, the rally began at 9:30am (NYSE Opening Bell), a sign that tradeflows were in control (this also helps explain why data didn’t matter).
That bounce back only made it so far before hitting the overnight resistance levels. This is/was troubling. 10yr yields treated the 2.36/2.37 area as a ceiling yesterday and as a floor today. For MBS, the equivalent inflection zone is 102-28 to 102-30 in Fannie 3.5s. This sort of pivoting is just the sort of thing we don’t want to see as yields move higher. It’s a classic byproduct of an intact trend. Unfortunately, this trend is not our friend.