Yesterday's bond rally took markets by surprise. Granted, the proponents of the 'death cross' or those pointing to support from longer term moving averages may have felt the move was justified from a technical standpoint (meaning the the crayon used to plot the course for bond marketss was "staying within the lines" suggested by various moving averages and trends), but for the most part, market participants were simply running with the herd and not entirely sure what all the fuss was about.
One of the key fundamental justifications for the rally in bonds was the weakness seen in equities. S&P's essentially matched their weakest day of the year and the Nasdaq came close. For all the ruckus in equities, bond markets weakened in the afternoon to end up at only moderately stronger levels. The pull-back also brought 10yr yields back above an intermediate trendline pointing gently toward higher rates (teal line below). Perhaps more importantly, even against the backdrop of a 40pt loss in S&Ps, bond markets merely rallied by about the same amount they've rallied the last 5 times 10yr yields broke below the 2.68 technical level.
In the defense of yesterday's rally, it did buck the trend somewhat in that the intraday rally was deeper than than the 2.64 level seen above, but yields would need to close under 2.68 in order to suggest a move to 2.60. Closing under the teal line would be even better as it would challenge that trend higher in rates that the last five days have done a lot to help us forget about (but that's still there, unfortunately).
Yesterday's economic data didn't do anything to prevent the rally, and if markets are similarly-minded, today's wont matter either. If the snowball/technical moves take a break, however, we could see some reaction to the 9:55am Consumer Sentiment release.
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