Good Tuesday AM,
Bonds are showing continued signs of strength and it does appear that Japan has completed their dumping of US Treasuries. Hopefully more buyers will begin to see the recent lows as the bottom and begin to increase their buying. Keep in mind that Treasuries are still shorted at record levels. This means that if Treasuries begin to trigger buy signals and break above their 21 day moving averages, the shorts will have to buy back shares to cover their short positions. What this does is create a buying frenzy that can sky rocket bond prices, driving yields down. We do not know when this will happen, but it will happen at some point. This is a light news week, so the charts will rule the price moves. MBS is butting up against resistance and I am not convinced we have the velocity to break above it. Remember that prices spend much more time range bound and breakouts are the exception. For this reason, we typically float at the bottom of a range and lock at the top. We are now at the top. This could be one of those exceptions and we may breakout. I say this because the MBS did break above a long term downward trend line. We need the 10-yr to close below 1.62% and then below 1.60% to get momentum moving in the right direction (currently at 1.66%).
The chart below paints a good picture.
Please remain safe and healthy, make today great.