– Bond markets could do no right, until the 30yr Auction, and even then, didn’t hit previous day’s levels
– Debt-ceiling headlines were rapid-fire from overnight session on
– New Thesis: GOP interested in kicking the can to late November for a bigger brawl
– Congress cancels next week’s recess. No stop-gap bill yet, but gov reopen possible next week
– Rates rose noticeably, despite MBS finishing flat
– Consumer Sentiment Data will report as normal. Forecasts not baking in much fiscal fallout (see chart below)
– Nothing else on the calendar, but Treasuries in a technical trouble zone.
– If bond markets move weaker today, and in decent volume, it would further confirm reversal
– But supportive levels haven’t been defeated yet either. Yet-to-come NFP still looms as a wrench in the works of any big moves.
Well… The bulk of the prose-based commentary was just accidentally divulged in the bullet points above. There’s not much more to it really. We’re at a sort of non-dire crossroads for bond markets where the technicals allude to the risk of further weakness, but fundamentals suggest a potential reopening next week and a glut of economic data could quickly reverse any determined moves this week. Thus, where’s the incentive for determined moves this week?
The answer is that the incentive isn’t that great. But that doesn’t mean we can’t see some sort of attempt. The charts below offer some considerations in that regard.
It’s not the only yield level in the world, but 2.671 is where 10yr’s hit their intraday high on Wednesday and their Intraday low yesterday. It’s also been a big player in the past, acting as an intraday low on 9/18 FOMC day and and intraday high on June 24th, which was the most abject of the vicious, 4-day-long sell-off following June’s FOMC Announcement (and likely would have been the weakest levels seen in some time if not for the bullish NFP on July 5th). Bottom line, we need to be moving back below, or the technical suggestion is that it becomes harder to do so next week.
If you noticed the tight, slightly rounded pattern of trading heading into the end of September in the chart above, and if you’d wondered if it has a name or significance… Yes, yes it does. It’s not the first time the term has graced these pages, but it’s been a while. The last time it accurately predicted 3 straight months of selling.
Hopefully the stakes won’t prove to be so high this time, but there’s some cause for concern when we look at a chart of CME hours only. Unlike the 24hr Treasury chart, this one offers the tell-tale “gap” that acts as the final confirmation of the frypan reversal formation. In candlestick charting, this would be a “rising window.” Even if the frypan reversal isn’t confirmed, the rising window (yellow lines below) acts as a floor of resistance for Treasury yields until it’s completely “closed” (meaning yields would have to move below 2.671–same conclusion as the previous chart, but for a different reason).
On a final note, consider the past precedent in Consumer Sentiment. While this month’s survey hasn’t had nearly as much time as July 2011’s to cope with fiscal drama, I hope I wouldn’t be the only person surprised to see Sentiment fall in line with the forecast median which is up at a shockingly high 76.0 vs 77.5 previously. Seems like 72-74 would be a more realistic adjustment, but you never know with economic data and “seems.” Some forecasters see it coming in in the high 60’s. We’ll see, and then we’ll see the more important event: how markets react (if much at all).
Note: the reports that would have been released this week are struck-through in this calendar.