Simply Put 

  • Bond traders thought the coast was clear after successfully pushing yields higher following Friday’s weaker NFP (that spoke to an underlying agenda to sell bonds regardless of the news).  As we discussed, the imbalance of trading positions (more traders felt like it was time for yields to move higher) created an opportunity for inclined sellers and vulnerability to any news that helped bonds improve.  Just such news began hitting over the weekend and was joined by several other contributing events:
    • North Korea tested a Hydrogen bomb and is reportedly planning another ballistic missile test
    • Trump said South Korea and Japan could buy sophisticated weaponry
    • Stocks lost a lot of ground, with some blame going to Hurricane Irma
    • Norway’s sovereign wealth fund is buying bonds
    • 2 Fed speakers railed against rate hikes today
    • Algorithmic bond buying is evident (automatic buying based on news headlines and certain trading levels being broken)

Today’s Data, Headlines, and Scheduled Events

  • No significant economic data today (no market movers)

Long-Term Lock Strategy and Market Themes 

  • “Sideways-to-slightly lower” theme in 2017.  
  • Fiscal and geopolitical risks can cause unexpected volatility
  • Ranges have been narrow and reliable, so we can watch technical levels to assess trends
  • Red flag levels are around 2.3 and 2.40% in the bigger picture.  

Short-Term Lock/Float Strategy 

  • Volatility has been lower than normal and lenders have been slow to adjust rate sheets.  That means lower risk/reward for locking/floating.  
  • Short-term, risk-averse scenarios should still consider locking but there’s a quick float opportunity if the lender in question didn’t pass along today’s gains (.25-.375 in terms of PRICE)
  • Moderately risk-tolerant clients can now watch 2.12% as an excellent overhead lock trigger
  • Aggressively risk-tolerant clients have been floating since early July and can set their lock triggers at 2.16% or even 2.22%.

Technicals/Trends in 10yr (why 10yr?

  • Ceiling/Support (can be used as “lock triggers”)
    • 2.11
    • 2.16%
    • 2.22%
  • Floor/Resistance
    • 2.07% (intraday lows)
    • 1.99% (low yields from the day after the US presidential election)