Yesterday’s closing comment, titled “Stronger case for stability, but not complacency,” confirmed the calming sideways sentiment of the first four trading days of this week, but warned “without a fundamental economic shock or good outlook, we won’t be surprised. if this rally is having a hard time making great strides toward lower rates. ”That is pretty vague, but the overnight trade has lined up clarity.
Instead of the general idea of ”hard times making great strides”, we can now a obvious dislike after 10 years the yields are below 1.62%. This strongly reinforces the other comments made in yesterday’s round-up that the recent strength can best be viewed as a sideways consolidation and that the case for higher rates remains broadly persuasive. While it’s an awkward place, it’s currently impossible to know whether today’s weakness marks a revival of a sales trend or just a token bounce in a new sideways area. This relapse could only be confirmed with an interruption of more than 1.75%.
If an early trade is an indication, there is some hope. 10 year returns managed to hold a cap of 1.68% this morning, roughly a pivot point from the beginning of the week (bottom on Monday and cap on Wednesday). The recovery coincides with European bonds finding their own cap. When EU bonds are sold at this time of the day, US bonds often pause in the afternoon after EU markets close. The Optimism needs to be tempered with a healthy respect for next week’s treasury auction cycle. Traders may hesitate to watch a rally on the Friday before an auction week.