- As expected, bond markets were waiting to trade this morning’s economic data. It came in weaker than expected, and a logical rally ensued. Unfortunately, a decent chunk has already been taken out of that rally, pulling yields back above the important technical level near 2.30% ahead of the domestic close.
- Most of the credit for the bounce goes to Europe, though there is a general phenomenon in play of traders closing long positions heading into the weekend. We’re simply seeing more of it in Europe because Europe closes first (and perhaps because Europe has more at stake with next week’s ECB Announcement)
- Today is a victory in the sense that we saw the best levels 2 weeks, but the failure to hold below 2.30% warrants caution in the coming week
Today’s Data and Scheduled Events
- Core y/y CPI unchanged at 1.7% (the Fed wants this over 2%)
- Retail Sales -0.2 vs +0.1 forecast
- Morning data update
- Alert 1, Alert 2
Long-Term Lock Strategy and Market Themes
- If Q2 2017 was marked by increased resilience and optimism in bond markets, Q3 is bringing back some of the post-election uncertainty. This time around, it’s the combination of potential European tapering and a Federal Reserve that seems determined to remove as much accommodation as markets will allow. Granted, the removal of accommodation should ultimately benefit bond markets for economic reasons, but that can take a long time to play out.
Short-Term Lock/Float Strategy
- Still defensive, especially for short-term, risk-averse clients who are seeing even better pricing today, combined with a technical bounce at key resistance levels
- Like yesterday, moderately risk-tolerant clients can continue to use this week’s pivot point at 2.35-2.36%
- The more risk-tolerant clients can still be looking at 2.42% as an overhead lock trigger.
Technicals/Trends in 10yr (why 10yr?)
- Ceiling/Support (can be used as “lock triggers”)
- 2.305% (broken intraday, but back intact now)