Bond Markets Weaker As Risk-Off Moves To Risk-On
Bond markets are in weaker territory this morning. The simplest and most accurate way to explain this is to say that yesterday was a "risk-off" movement and today has been "risk-on." This was the theme in The Day Ahead
, although we'd hoped to see more than just one day of the risk off move.
That said, if we resigned ourselves to following the general swings in equities and European markets amid a lack of domestic data and/or bond-market-specific trading concerns, then we were tacitly agreeing to be at the mercy of equities and European risk markets.
In that sense, the overnight session made a nauseating amount of sense. Asian hours were just about as flat as they could be with less than a 2bp range in 10yr yields and a 3 point range in S&P Futures (after all, yesterday's risk-off move was assigned to Europe in the absence of significant domestic data, so Europe gets to keep carrying that torch).
European data--and there was a good amount--erred on the side of strength last night with stronger services PMIs in both Spain and Germany. Italy's PMI was slightly weaker-than-expected, but that didn't change the takeaway. Peripheral debt moved tighter to German Bunds, themselves moving steadily higher in yield, clearly dragging US Treasuries higher in the process.
Domestic accounts took over in the morning with the first pre-market domestic trade making for a decisive pop over 2% in 10's. This corrected somewhat by 8am, but not so much as to change the broader message, which again, is simply a "risk-on" motion in relatively equal proportion to yesterday's "risk-off."
If anything, we'll take some solace in the face that this less-friendly move is somewhat smaller--i.e. we haven't made it back to Friday's weakest levels. The more disconcerting prospect for today is the the 10am Services PMI is more of a market mover than yesterday's Factory Orders report (which wasn't a market mover at all). If the ISM Non-Manufacturing PMI is in line with the stronger European readings overnight, it merely adds to the risk-off move, likely making it look more like a foil of equal measure to yesterday's recovery.
Even before that, there's the opening bell for stocks. Given the stock-lever connectivity, this could cause volatility for bond markets well in advance of the 10am data. Intraday max supportive ceilings in 10's are at 2.0375. Considering our allusions to wax-on/wax-off, testing 2.0375 would sound like cracking glass.