Interest Rates Continue to Rise

Interest rates continue to increase, on initial thought you might think we are crying wolf too much. Since 2/25 we have been saying rates will increase, so far that has proven correct; however we also pointed to key technical resistance above the current rates. Today we are there with the 10yr testing its 100 day average and a down trend line, all market momentum now is bearish. The last time the 10yr got to these levels was 2/17, then prices increased and yields declined - in the last 4 days the 10yr yield has jumped 12 basis points.   Friday February employment is likely to either resume some improvements or start the assent to 2.30% for the 10yr may take mortgage rates up 25 more basis points.

There were no economic reports today. Tomorrow starts the countdown to Friday’s employment report with ADP reporting its private jobs count.   Also tomorrow will see the February ISM services sector index being released.  The Fed will release its Beige Book tomorrow afternoon. A day before US employment, Thursday, the ECB will announce the details of its QE plan to buy EU debt. How strong Draghi’s plan will be is the focus.

The last time the US 10yr note traded above its 100 day average, Sept 11, 2014 and then it was for only 8 days before moving back below the long term average. The point is, the 100 day carries a bearish connotation. The 10yr is at 2.12% where it sits now. Looking back at the charts to April 2014, I believe it is significant. No change in the underlying technical reads on the models and momentum oscillators - still bearish and that would not change unless the 10yr dives back to 1.92%.  What happens if the 10yr clears the 100 day? Looks like a move to 2.30% for the note is possible, taking mortgage rates to 4.25% or more.

In summary, it is getting harder and harder to stomach this bond market. Just when you think things are turning a corner they don't. That has been the story for some time now. Tomorrows ADP data and more importantly Fridays Jobs report may be the game changer. Being that we have given up so much and are near solid support I would float into tomorrow’s ADP report.