Good Morning on this best day of the week, Wednesday,
Bonds are really having a hard time this week. The Santa rally in equities is over but bonds are not recovering. We need to find bottom of this trading channel, especially when Friday brings the jobs report, which if beats forecast, will drive rates even higher. Today’s ADP jobs report is likely the catalyst for the markets sell off this a.m. The market was looking for around 500k new jobs and instead we got over 800k. From a technical standpoint, the ten-year yield chart is trying to close the gap up from yesterday. Hopefully it will and then proceed to drop. Gaps like yesterday seldom result in sideways activity. We either see a gap and go, where the run continues after the gap up (rates head lower), or well we just see more selling which pushes rates up higher still. This gap yesterday, occurred at the very top level of resistance. The same thing happened the last time the ten-year bond tested the 1.70%. We are currently at 1.68 level and are close to the line in the sand. We would love to see this happen again (test 1.70% and drop to the 1.40s) as it would improve rates about .25%. It is just too early to say if it will and we will not likely know until we see the Friday payroll numbers. Until then, expect volatility.
Please remain safe and healthy.