Bond markets capped a rather unpleasant 2-day move today. While 10yr yields only rose 3.4bps by the close, the losses put us right back in the 1.52-1.62 range that dominated the 2 weeks leading up to last week’s Fed Announcement. Following the Fed, rates moved lower with apparent conviction, but that now looks like a head fake.
The timing of the weakness is important, considering that tomorrow kicks off 3 busy days of important economic data (ADP and ISM Services in the morning, and of course, NFP on Friday). There’s some small chance that we’re simply seeing extra defensiveness on the part of traders due to a heavy week of corporate bond issuance. But even then, we’d likely need to see weaker economic data tomorrow if we hope to continue the fight to break back below the important range boundary at 1.52%.
Today’s top tier data was limited to Incomes and Outlays, which did little to move markets this morning (income was slightly lower than expected and spending was slightly higher). Much bigger market movement was seen heading into the afternoon as traders who’d bet against bonds covered their short positions (“short” = sell bonds, so “short-covering” = buy bonds). This has the effect of pushing yields lower, but without an underlying positive implication. Disconcertingly, yields bounced HARD at 1.52% before heading higher into the close (disconcerting in that it confirms this will be a tough level to break through).