Friday was pretty great for bond markets. It was a solid day of gains at the end of a week where we’d already had two other solid days of gains. All of the above was leading us back down from an important big-picture ceiling in the form of 2.62% 10yr yields. It even went so far as to reinforce a bounce below the 2.55% ceiling as well.
While we may not be back up to 2.55% today, we’re a lot closer than we were on Friday afternoon. This is the bond market’s way of getting more neutral ahead of a slate of big economic reports and significant events like Wednesday’s FOMC announcement.
Does that mean we should have seen it coming? In other words, were bonds “supposed to” get neutral ahead of such things? Not necessarily, although I did make a case for such things earlier in the week after the first two solid days of gains. Friday was a move that seemed to break enough ground to consider something else might be going on.
In fact, something else may have been going on until a big trader started making big trades early in the domestic session today. That started a bit of a mini-snowball selling spree that cost us nearly 3bps in 10s and just over an eighth of a point in MBS.
All this having been said, bigger moves remain a risk as the week’s data begins to fire on all cylinders.