An interesting thing happened today for those who were paying close enough attention to notice. At face value the week’s most important economic report came out weaker than expected and bonds rallied in response. Notably, however, the rally actually began more than an hour and a half before the data.
What was going on at the time that could have motivated a clear departure from a very narrow, sideways grind at the week’s highest 10yr yields? Nothing more or less than the 8:20am CME open. Every morning, the CME open is like the starting gate being thrown open at a race among bond traders to make certain trades that were simply waiting for the green light.
Many times this is uneventful, but occasionally there are a few big trades that happen right at the open that end up setting a bit of a tone for the morning. Other traders who may have been more neutral are thus persuaded to ride the coattails of the ensuing momentum. In other words, a few big traders take a leadership position by making big trades, and other traders follow the leader.
Rest assured, those “other traders” aren’t always so willing to follow. As such, we can indeed read something positive into their willingness to do so today. In fact, it’s not entirely clear that bonds even needed a weak ISM Non-Manufacturing reading in order to rally today, but it certainly helped reinforce the desire to remain in a sideways range with 10yr yields centered on 2.72%.