The title of yesterday’s recap was “Don’t Call It a Comeback,” and today’s weakness is why. Well, to be fair, since I’m always the first to tell you that no one knows what tomorrow will bring in financial markets, we knew nothing of today’s weakness ahead of time. What we DID know what that yields were higher on the day, yet again, and were visibly struggling to make it back below a key technical level at 2.47%. That weakness kept rates in a clearly-defined trend toward higher levels. Today’s weakness simply offered a continuation of that trend.
If you want to leave it at that with the conclusion that this new trend is not your friend until it does something friendly, that’s fine. If, on the other hand, you want some fundamental meat to underpin the market movement, we have that too. Specifically, positive updates on the US/China trade negotiations hit both sides of the market early in the overnight session (helping stocks and hurting bonds). Decent European economic data added to the pain several hours later when European bond markets came online. And that was that for the rest of the day (i.e. bonds were flat in the domestic session).
To make matters just a bit more disconcerting, the domestic session might not have been as flat as it was had it not been for the weaker-than-expected ADP Employment and ISM Non-Manufacturing data. Bottom line, 10yr yields rose more than 5bps on a day where two important economic reports suggested a move in the other direction. So even if fundamental data is driving some of the movement, bonds have been placing more importance on the data that supports the pull-back so far this week.