There was a lot expected of this week and it turns out that the build-up was far more exciting than the results. As mentioned on Wednesday afternoon, the Fed announcement and subsequent press conference did very little to provide traders with any new insight into future Fed action.
One thing that the Fed did do was make it clear to not expect anything definitive from them. They are doing just what everyone else should be doing which is look to the economic data to determine the future of interest rates. However, the game here is to see what the Fed will be doing regarding their open market operations so traders can front run the Fed. That is what bond trading is about now-a-days as opposed to trading based upon fundamental or technical philosophies.
So where do we go from here? In my opinion not very far in either direction until the NFP number next Friday. We are currently sitting at a 1.95% on the 10yr and I give the range a +/- 8bps from here. Of course there could always be some headline news out of Europe that could rattle the cage but those headlines have been pretty quiet. When something has happened over there like the recent downgrade of Spain, it was met with little reaction. So all eyes will be on next week’s report to see if there is any follow-thru from the last poor report. If it is another weak number then I could see us having a nice rally that might not test the 1.71% low on the 10yr but I could see 1.80% pretty easily.
However, if we get a strong number then we could see getting right back to about 2.25% which is where we were before the last number. Now I believe the best scenario would be a number that is non-eventful and in-line with the consensus which should keep things status quo. I like this more for many reasons one of which is that it just continues the low rate sentiment in the market without any disruptions in the trading range.