The Week Ahead: Limited Data, Bond Auctions, and More Indecision

The basic candlestick or bar chart that the average bond analyst uses to track 10yr Treasury yields is doing a good job of capturing the current opposing forces in rates.  On the one hand, the combination of economic data, NAFTA 2.0, and Fed comments (among other things) makes a logical case for higher rates.  This is easily seen as the pervasive series of "higher lows" over the past 2 months.

On the other hand, doubts about the sustainability of lofty economic numbers and doubts about the market's ability to thrive with 10yr yields over 3.25% make a case for support.  This can be seen in the less-developed series of "lower highs" leading back from the long-term high 2 weeks ago. 

The result is the typical triangle--a consolidation pattern where the higher lows and lower highs eventually collide.  The takeaway from such triangles can be as simple as saying "oh look, there's a triangle.  There must be some indecision around these levels!" or as presumptuous as "rates are clearly storing energy in anticipation of a big breakout."

2018-10-22 open

Either way, the triangle will have to be broken early this week.  It wouldn't be a surprise to see an underwhelming follow-through, given the sparsely populated economic calendar.  Bigger-ticket reports don't show up until the 2nd half of the week and even then, the reports aren't the biggest market movers recently.

3.18% (where we're starting out today) has been a short-term pivot point of some significance.  It's been more willing to act as a ceiling recently, but is being approached as a floor coming down from Friday's higher levels.  If it results in a bounce toward higher rates, 3.21-3.22% would be the next level to watch, based on last week's highs.  If rates can continue to rally, 3.13% remains the level to beat.

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