Things have been bright and sunny for the bond market without any troubling exceptions since mid-April. During that time we’ve only seen 10yr yields rise more than 6bps (close-to-close) 3 times. Today was one of them. We could say something like “the sun also sets,” but that would be ignoring the fact that yields hit their lowest closing levels since Nov 2016 yesterday. And as it happens, the other 2 days with 6bps+ losses also followed strong trading days near long-term low yields.
So the worst thing we can say for now is that the sun went behind a cloud. If things remain dark tomorrow, we’ll ratchet up the level of concern accordingly.
As far as underlying motivations for the weakness, there’s no doubt that US/China trade headlines moved the needle in the overnight session. We can also infer some bias toward weakness by the absence of a decent rally following the much-lower-than-expected durable goods data. But if trade headlines were the biggest consideration, we should have seen a more meaningful bounce back into positive territory after the overnight headlines were debunked (for the record, they initially said a trade deal was 90% complete without being clear about the fact that the source of that comment was speaking in the past tense about how negotiations were shaping up before the last time they fell apart).
The persistence behind the bond market weakness suggests technical momentum is in play as well. Rates look like they’re consolidating inside the range set on Fed Day last week (we have yet to move outside those yields). Yesterday saw yields very close to those lows, so today makes sense as a technical bounce.