It may not be the last time we can say this, but bonds hit their weakest levels of 2017 today–first in the overnight session as European bond markets sold-off, and then again just before 11am. The second sell-off was multi-faceted. Stock market resilience played a role (at the time, it looked like the 9:30 NYSE open may have marked the lows of the day for stocks), as did late day weakness in European bond markets.
More than any singular motivation though, bond markets are simply not feeling very well. Broader momentum was on hold over the traditionally illiquid time frame between the 2nd half of December and the 1st half of January. During that time, we enjoyed a nice little correction from the late 2016’s pervasive weakness. Yellen’s January 18th speech brought the pain back, and from there on out, volume and participation has been elevated, and negative momentum is its own justification.
Stock market gains are part of the same disease. Higher stocks and higher bond yields are both expressions of risk tolerance among investors. With that in mind, the fact that stocks began losing ground this afternoon did seem to help bonds find their footing. Traders were even more keen to buy bonds after a relatively strong 7yr Treasury auction at 1pm. By the 3pm close, Treasuries were just barely back to ‘unchanged’ on the day, and all of the ebbs and flows had taken place well-within the post-Yellen range.