Good morning to those navigating the market’s ebb and flow. Today, we note a slight dip in mortgage-backed securities (MBS), down by six basis points. Meanwhile, the 10-year Treasury yield is nudging upwards. Before we delve into the technical landscape, let’s first explore the broader economic signals at play.
The LEI and Recession Forecasts
The Leading Economic Indicators (LEI), designed to forecast the economy’s trajectory, have ticked down for the 21st consecutive time, albeit by a mere 0.1%. The Conference Board interprets this persistent downtrend as a harbinger of recession, potentially materializing in Q2. It’s important to remember that the National Bureau of Economic Research, the official arbiter of recessions, may only confirm such a downturn well after it’s begun.
Interpreting the LEI’s Message
While the LEI suggests caution, the Conference Board offers a silver lining, predicting any recession to be brief. However, the details merit attention. For instance, the minor decrease in the LEI would have been more pronounced, dropping by 0.3%, if not for the buoyancy of stock prices, which is one of the LEI’s components.
Auctions and Their Market Impact
This week’s auction calendar is packed, starting with today’s two-year note auction. A whopping $162 billion in Treasury notes requires absorption, a factor that could sway the bond market depending on investor appetite.
Technical Analysis: MBS and the 10-Year Yield
Turning to the technical analysis, MBS are trading within a defined range, with a notable base forming around the 101 level. This base has been tested multiple times, and while MBS has dipped below it, they’ve managed to close at or above it consistently. Today, we’re below that level again, and we’ll be watching to see if we can reclaim it by close.
A technical bright spot is the stochastics indicator, which shows an oversold condition for MBS. A rebound in bond prices might trigger a positive stochastic crossover, a bullish signal for bond prices.
The 10-year Yield, on the other hand, is up by four basis points at 4.13%, still hovering within its own range. The Yield is approaching the 50-day moving average resistance, which has previously held firm.
The market maintains a cautious but watchful posture as we parse through the LEI’s recession signals and prepare for significant Treasury auctions. The technicals offer a roadmap, but as always, the unfolding economic data will dictate the journey’s pace.
