Just when you thought we might be done talking about “consolidations,” there’s that word again! I’d suggested on Friday that the modest bond market gains helped to confirm a consolidation as opposed to a correction, with the recent yield highs of 2.92% acting as the dividing line. With Friday closing just under 2.90%, we weren’t exactly out of the woods with respect to the days leading up to Wednesday’s Fed festivities.
That changed today, for the most part, as yields rallied all the way down under 2.86%. At this point, it would take a fairly serious bout of weakness tomorrow for the “consolidation” definition to be questioned.
But why does the definition matter? A a matter of fact, the words “consolidation vs correction” don’t really matter. The underlying definitions matter more. For our purposes, a consolidation is more of a sideways move that allows the market to catch its breath after a strong run. A correction can serve the same purpose, but it can also simply be the beginning of broader reversal. In that sense, we wanted to see the sideways version because it keeps hope alive with respect to a good outcome for rates coming out of the Fed events on Wednesday.
Today’s economic data wasn’t a meaningful source of inspiration for bonds. Rather, it was all about stocks! The SP broke to new 2018 lows and bond yields took cues from stock momentum throughout the day. The only risk here is that a big bounce in stocks could suggest an unwinding of today’s bond market gains.