Bond markets are in weaker territory today, more than erasing all of yesterday’s gains and taking 10yr yields to the highest levels in 2 weeks. The key culprit is the surprise rate cut from the PBOC (People’s Bank of China). In the chart below, notice how stocks and bonds were trading fairly flat, and how volume in Treasury futures was relatively absent before the news.
The second surge of volume and weakness arrived at 8:20am, which is not an uncommon time of day to see such surges in these circumstances. Specifically, when overnight data is the key market mover and when there’s nothing significant on the domestic calendar, the traders that rely on the Treasury pit being open at the CME play a more active role in determining where rates go (and the pit opens at 8:20am).
In addition to the specific news, bond markets were already up against the somewhat gloomy technical reading outlined in the Day Ahead. While we’re still in the confines of October’s trading range, this move suggests extreme vigilance in the upcoming week. If 10’s break October’s highs in conjunction with correlated moves in other markets, it’s bad news.