The past 3 trading sessions have largely represented a consolidation in prices and yields, just off the best levels of the year. There has certainly been a risk that rates were bouncing off those levels only to begin the next uptrend (much like mid April through mid-May), but there’s some solace to be taken in the “ceiling” behavior seen around 2.22% in 10yr yields.
It’s not that 2.22% has been an unbreakable line in the sand, but it has been at the higher end of a sideways range where we’ve seen yields making more of an effort to bounce on horizontal levels.
What does it all mean? Nothing too fancy, but it does confirm something we’d frequently assume before any major Fed announcement: bonds are ready to go either way. That might sound like unimportant common sense, but the more neutral approach makes a difference. This isn’t a bond market that is clearly determined to head back toward higher yields. Bonds CARE about tomorrow’s data and events. The outcome of those events is likely to inform the next move.
Bonds reinforced their willingness to consider holding ground at current levels by putting together a rather decent amount of demand for today’s 30yr bond auction, even after this morning’s stronger producer inflation data. If rates were feeling some underlying urge to move higher, we would likely have seen it this afternoon. Instead, we saw modest gains bringing us back in line with recent mid-points. That makes tomorrow all the more interesting.