If there's a consistent theme for bond markets so far in 2014, it's been "indecision." I referred to it as a "Serious Monotony Problem" on Monday, but it's been going on much longer. In fact, when we step back and take a look at the longer term range beginning in the mid-2013 "post-taper-talk" era, we find that the current sideways range is nothing more than central zone of overall range... which also happens to be sideways!
The phrase "central zone" is not arbitrarily chosen or intentionally ambiguous. In this case, it refers to a fairly standard 'retracement' framework against which markets measure progress within a range. Some literature takes the notion of retracement levels to magical extremes, but all that really matters is that market participants are aware of them and they know that remaining inside the dotted lines below is a mutually-agreed-upon narrow range.
Ever since entering this range, 10yr yields (used as a proxy for overall interest rate momentum) have either been pushing the outer limits (red circles) or biding time in the central zone (white circles). Even if it's only to make a move within the broader range, yields will soon be faced with a decision about staying in the central zone. It's entirely possible that a notably downbeat jobs report on Friday serves to prolong the stay in the zone while a strong report suggests a break.
Today's ADP data normally serves to spook or excite markets with respect to NFP prospects, but the two have had their fair share of differences into the end of 2013 and beginning of 2014. We've also seen bond market trading express a good amount of disregard for the inbound data. The caveat is that the observation surrounds month-end where trading is happening for reasons beyond economic influences. That means we could see more connectivity between data and trading levels in the last 3 days of the week. Still, how do you attempt to figure out where the blue line is going (BLS Private payrolls on Friday) based on where the red line goes (ADP today)?
Join Now or Login to Post Comments