Bond markets are “done” with this week. 10yr yields haven’t spent more than one day without being on both sides of the fence at 2.70 this week, which is dead center in the longer-term 2.6-2.8 range. We can try to assign movement to market events, but at the end of the day, it takes some doing for bond markets to rally on a day when both of the week’s most significant economic reports come out stronger than expected. That suggests a certain amount of determination to seek out the center of the range at all costs.
Most of the “assigning” has gone the way of Ukraine and geopolitical risk. I’ll be the first to admit that it’s affecting trading levels, but it wasn’t the 800lb gorilla that it was made out to be yesterday. For a visual on that, let’s look at the last known instance of bond markets rallying almost exclusively due to Ukraine-related headlines on April 15th. What we’re looking for in this chart–which is overlaid with SP futures–is to see Treasuries (the yellow line) leading the chart in terms of relative movement. That’s the way things should be when geopolitical risk is the driver. Also, note that the when stocks finally hook up with the big move in Treasuries, they’re much more gradual about it than they were yesterday (shown in the lower section for comparison).
Again, to be clear, Ukraine-related headlines were a part of yesterday’s spike. That said, they weren’t the the only consideration, or perhaps not even the primary consideration. Unfortunately, they’re the easiest to credit, which in turn makes markets increasingly vulnerable to herd-like movements on the next batch of headlines.
Those may or may not come today, but if they don’t take 10yr yields out of the 2.6-2.8 range, it doesn’t much matter. What we’ve most likely seen here this week is an intermission within an intermission; and even smaller, narrower sideways move within a longer-term sideways move. Next week’s FOMC Announcement and Nonfarm Payrolls are the meaty kinds of events that at least have a chance to break the monotony.