MBS RECAP: Strong Showing For Bonds


I don’t think candlestick patterns can predict the future, but a few of them offer quick and easy ways to convey a certain theme in the market.  One of the clearest patterns  is the “engulfing pattern.”  This happens when today’s candlestick completely engulfs yesterdays’s (in the sense that it has opening and closing levels that fall outside the range set by the previous day.  In other words, prices/yields/whatever just moved way more than they did in the previous session, so the direction of the move should carry a bit more weight in terms of speaking to underlying momentum.

With all of the above in mind, today’s 10yr yield candlestick easily engulfed the last 2.

2018-12-3 close

There’s an outside chance that today’s strength simply represents a glut of “new month” tradeflows and that it will serve as a cue for overseas markets to bet against Treasuries overnight.  But to whatever extent we hold gains tomorrow morning, we’ll be witnessing confirmation that bonds are taking bigger picture shift potential very seriously.

Specifics didn’t seem to matter to bonds too much today (another good sign).  ISM Manufacturing came in stronger than expected, but didn’t cause more than a few brief moments of weakness.  Without any over justification, bonds just kept rallying from there, even as stocks and oil prices bounced higher in the afternoon.

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