Even after moving across the 3pm close of Treasury Pit trading at the CME, bond markets have continued to hold inside the same narrow, sideways range that has contained all the day’s trading. In the case of MBS, prices have been in the same range since 11am yesterday!
The best levels of the day were seen right at the start with the most pronounced bit of weakness coinciding with the most pronounced rally in stocks. As soon as stocks turned the corner at 11:20am, it was lights out for bond market drama, and they have been on cruise control ever since.
As was the case yesterday, there was essentially no impact from the morning’s economic data. Producer Prices were higher than expected and Consumer Sentiment was stronger than expected. Both of those reports would be negative for bond markets, all things being equal, yet here we are in positive territory with few places to look for blame beyond stock market weakness.
How long will this continue to be the case? First of all, without more frenzied selling in stocks, bond markets are already starting to push back, in that they’re less willing to move lower at the same pace as stocks. For instance, note the slight move higher in yield in bond markets from 8am to 3pm while stocks are at new lows.
That raises a question as to the level of selling that would be required in equities to really force the hand of bond markets that are increasingly meeting technical resistance. It’s impossible to know exactly how that would turn out, but there is more room to rally at this point. As 10yr yields attempt to go below 2.60, it gets increasingly difficult without justification from stronger economic data.