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MBS Day Ahead: Since The 1980’s, Only 3 Other Days Like Today

May 14, 2018
by admin

I hate clickbait with a passion. Today’s title might sound like clickbait. Do I really expect you to believe that there have only been 4 days like today since the 1980’s when it comes to bond markets? Actually, yes…

2018-5-15 open

But I suppose if you want to be picky, you could say these are really 4 separate “instances” where bonds have revisited this ceiling. Some of them–including this one–aren’t perfectly narrowed down to a single day. Even so, if we had to decide which day did the most to cross the upper boundary of the trend, it’s definitely today.

So what does this all mean and why is it happening? I think the concepts from this commentary post are relevant (and will continue to be: Why This Time is Different.

The bottom line is that the writing on the wall has been telling rates to go higher since at least last September (Treasury issuance, Fed stance, continued econ expansion, risk of decreased need for trade partners to buy Treasuries). Rates keep looking back to see if the writing has changed, and although there have been opportunities for hope (trade wars, stock selling-sprees, spotty data at times), it hasn’t.

Today is just the latest reiteration of that writing. Tariffs stood a chance to take a bigger-than-expected bite out of Retail Sales because the economic models driving any given forecast always run the risk of not being nimble enough to account for the most recent developments. But Sales came out right in line with those forecasts in slightly positive territory. Since then, bonds have quickly moved to the highest yields in more than 6 years.

Expect this break to carry serious technical momentum and then to motivate a quick and fairly big buying spree as the sales positions are cashed in.

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