Rates were flat to start the overnight session and didn’t bat an eyelash at initial strength in equities markets during Asia-only trading hours. Things changes when European trading got underway with the sizable jump in the DAX (German stocks) coinciding with the first selling streak of the day in US Treasuries.
Even then, yields never went any higher than yesterday’s highs before correcting a bit. We actually touched unchanged levels at 5:53am, but it was all uphill from there. Without any clear correlation to an event, headline, or related market, bond selling picked up aggressively just after 8am (when a majority of domestic traders begin their trading day). The 10 minutes of volume following the 8:20am CME open dwarfed any other 10 minute block of the day, suggesting that traders were in line to sell bonds regardless of any outside motivation.
This is both a good and bad thing. It’s bad in the sense that it created the highest yields in nearly a month and because it perpetuates an unfriendly trend. It’s good (potentially) if the source of the volume was traders closing positions ahead of a holiday weekend. If that’s the case, those long positions (good for bonds) that could come back into the market next week.
But all of the above assumes that position-squaring is a dominant force in the move. We have no way to confirm that yet. The next major unknown we can confirm will be the extent to which bonds are bracing for impact from Chinese economic data overnight. With several big reports due out, it could be the case that traders were getting a jump on another Chinese data surprise. If the data falls far from forecast, the bond market’s reaction will tell us a lot about just how closely traders are watching the ‘global growth’ narrative.