Even though mortgage rates hit multi-month lows several times in the past 2 weeks, today is significant in that Treasuries finally broke the range. Specifically, 10yr yields moved below 2.57.
As we’ve discussed on numerous occasions, range boundaries and other ‘technical’ levels aren’t best-suited to predict where a security will bounce, but rather to make a comment on what’s significant and what’s not. In other words, if we say the lower end of the Treasury range was 2.57, that doesn’t mean rates will continue to bounce there. It simply means the following:
1. They’ve bounced there more than once in the past.
2. The more they bounce there, the more it means when it breaks.
Long story short, 10yr yields made a strong move down to 2.57 in early May and bounced excessively. Then they looked to be moving higher into mid-month and now in the space of just two days, swooped back down and crashed through 2.57, heading all the way to 2.525 at their best levels today.
Because this rally is primarily driven by anticipation surrounding monetary policy easing in Europe, European bond markets logically reap the most benefit. Treasuries are next in line, followed by MBS. Even so, MBS have been staying impressively close to Treasuries during this rally. Fannie 3.5s added more than half a point today. 10yr Treasuries only managed 3/32nds better.
On a final note, keep in mind that when ranges are broken, the technical signal is strongest when the range stays broken for second day. In that sense, tomorrow is also quite important to the longer-term picture.