Before yesterday, a break below 2.47 in 10yr yields was less likely than remaining in a narrower range. The big breaks would logically have their best chance with the big data coming up next week. But we can check that particular logic at the door.
While a move down to 2.44 isn't a completely mindblowing eventuality, it's still pretty impressive in context. After all, there was nothing significant on the calendar yesterday and there were no major market-moving headlines. So on sheer power of tradeflows and technicals, long term inflection points are being tested.
The unfortunate side-effect of checking logic at the door is that one must merely buckle up and enjoy the ride until there's a clear resumption of cause and effect. In other words, things won't really make sense until they make sense again. Groundbreaking, I know...
To be fair, we can make some sense of yesterday's move, and attempted to lay that out in yesterday's Recap and Mid-Day notes. But ultimately, those amount to explanations for unexpected events rather than a review of known possibilities.
If we'd like to give this rally more respect now as an "ongoing thing" (rather than "something that hits resistance at 2.47 and waits for next week's ECB Announcement"), we can consider two other possibilities. First, there's the matter of today's GDP release. The last GDP release (the first look at Q1) saw a much bigger reaction than GDP normally gets, ostensibly because it was a huge miss (0.1 vs 1.2 forecast).
Now we come to the first revision of that release and the consensus is down to -0.5. It's not asking much to consider there's a trend here, and given the choice between breaking higher or lower after last week's consolidation, bond markets might think it significantly easier to approach GDP from lower yields and move higher if the number ends up being OK, as opposed to approach from higher yields and chase yet another snowball rally lower if the number disappoints again. That's one hell of a run-on sentence, but the point is this: bond markets could be setting themselves up to experience the lowest amount of pain in case they're wrong.
The other consideration is that maybe we need to get over what we think is important in terms of long-term inflection points. 2.47 is a popular one among market participants and pundits, but if it wasn't, Treasuries just look like they're in a downtrend. It's the fact that there's a fairly strong consensus on 2.47 as a lower bound combined with 2 back to back pushes to the lows of the year that imbue yesterday's rally with a certain sense of wonder. If you instead took a random observers off the street and told them that this particular market has been trending lower since April and here's the chart, they might not be too excited about what was essentially an "in-trend" move yesterday.
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