Let’s change up the old fairy tale. Bond markets have been cried wolf on a few recent occasions. In my version of the fairy tale, “crying wolf” is equivalent to saying “hey guys, there are no wolves around, so it’s safe to come out and play.” Anyone who listened to that wolf cry (Nov 16, 22, or 29) was promptly eaten by the wolves (i.e. rates snapped brutally higher just when it looked like they might be calming down).
With the blood still on the ground from the last feasting of the wolves (yesterday’s big sell-off), we’re once again hearing bond markets cry wolf. This time, we have a rejection of a fairly epic long-term ceiling at 2.50% in 10yr yields as well as a rally below the next relevant ceiling of 2.42% today–all against the backdrop of a jobs report that came out in line with expectations(178k vs 175k forecast) and with a big drop in the unemployment rate (from 4.9 to 4.6 percent).
Are the wolves really gone?
Gosh, I sure hope so, but we won’t really find out until next week, first with the Monday morning reaction (if any) to the Italian referendum and then with the guaranteed reaction to next Thursday’s ECB Announcement. Through a more pessimistic lens, instead of calling attention to yesterday’s big bounce at 2.50%, we could instead say that rates rallied toward–what had been until yesterday–the highest closing yield in more than year (2.38%) only to fail miserably to break through. In that sense, it’s the 2nd worst day of the year. If the rally continues, we can revise that stance to proclaim today as “wolf free.” Until then, assume they’re out there.