Stocks and bonds haven’t necessarily been joined at the hip for every moment of every day recently, but there’s been enough correlation to make today’s market movement significant. Simply put, big, obvious breaks to or through new lows in stocks have recently coincided with reliable rallies in bonds. In today’s case, however, bonds hit yesterday’s floor multiple times this morning and then bounced higher.
Somewhat troubling was the fact that bond yields continued to move higher even as stocks underwent another clear breakout to more long-term lows. On most any other day in the past few months, such a move in stocks would have been worth at least a little bit of improvement in rates.
The takeaway is that the bond market has found its near-term floor of its own volition. Now, this isn’t to say that rates would continue to hold this floor no matter what. Surely, there’s some limit to the amount of stock losses (or other external drama) that rates would be willing to endure before responding. The issue is that the oncoming holiday season makes for an uncertain, illiquid, and perhaps even inconsequential trading environment.