Bond markets had a bad day. The setup for this one started as early as Tuesday, when what looked like a shift toward weakness on Monday was instead greeted with a refreshing amount of resilience. Despite the fact that the resilience was based on geopolitical risk, it may have nonetheless set us up to hope that we could hold our ground. Then, when today’s Geneva talks produced news of deescalation, bond markets were quickly forced to pay back some of the panic premium they’d benefited from earlier in the week.
The geopolitical story accounts for the brunt of the afternoon weakness, and perhaps some of the morning weakness. Even then, the economic data was unequivocally stronger. Jobless Claims continue hovering around territory they haven’t hovered around since before the crisis. The Philly Fed index also came in much stronger than expected with solid a solid read on employment.
By the time you combine the strong data, soothing Ukraine headlines, and the holiday-shortened trading day/week, it was enough for an abrupt snowball sell-off–and one that seemingly came out of left field. Lenders repriced in droves, and the range-trade gets a substantial dose of confirmation (in that any surprising strength today would have challenged recent lows, but surprising weakness merely preserves the sideways range).