Despite the presence of a big economic report like Retail Sales (which came out much higher than expected) or the unique event risk presented by the Barr report, the defining moment of the trading day will turn out to be the 3:30am release of just-slightly-weaker manufacturing data in Germany. Case in point:
As seen in the chart, the 8:30am Retail Sales data pushed back on the 3:30am rally, but not enough to break into higher yields. Since then, European bonds have continued to slump and US bonds have continued following.
Why do we care so much about a piddly little manufacturing headline in Germany?
Keep in mind that, in terms of the domestic economy, it’s hard to make a case for any imminent recession or significant contraction in economic growth. For such conclusions, we must turn to Europe and China–which is exactly what the Fed did on March 20th when it released a very bond friendly announcement. As such, the focus on European and Chinese economic data has been much higher than normal.
Over the past 5 business days, Chinese economic resilience pushed yields higher. Now today, European economic missteps are pushing back in the other direction.
In the bigger picture, any additional resilience will make a case for a bounce at 2.62% yesterday, which is both an important technical level and also the current quarterly moving average. Breaking below 2.55% (and holding it) would be a more impressive and more meaningful victory for bond bulls. All that having been said, I would hesitate to count any such victories if they look like they’re happening today considering we’re heading into a 3 day weekend and may well see a different trading landscape on the other side of the weekend.