So bond markets were supposed to suffer heading into to 2014, and most everyone was wrong. Once everyone got on the same page about being wrong, then bond markets were supposed to supposed to be bath in nothing short of a miraculous confluence of previously unforeseen positive factors.
I hate the term 'paradigm shift' because it's played-out, but that's what was happening in late Spring. Clearly the original paradigm was off in some way, but then--as markets have a tendency to do--the opposite of that paradigm took over as the majority viewpoint. Bonds were supposed to do poorly. They didn't, so now maybe bonds are supposed to do great?
That's where the 'miraculous confluence' comes into play. Bloomberg articles on secret discoveries driving unprecedented long-bond demand, European QE potential, gloomy data internals (lack of wage inflation is a real thing, of course!), a sputtering out of the apparent housing rebound, you name it! If anything could be dressed up and paraded as a benefit to bond markets, it got the call.
Even skeptics raised eyebrows when 10yr yields hit 2.40, and it was at THAT point--that magical moment in financial markets--where enough of the stakeholders in a particular sector finally abandon previous positions that the grifting trade is finally crowded enough as to no longer be profitable. This was most hilariously obvious in the CFTC's official position report just before the 2.40 bounce that showed asset managers still betting that rates would move higher while "fast money" traders were betting on rates going lower.
In that situation, the nimble, leveraged traders can "stop out" the stuffy old-fashioned asset managers who are puzzled by the incessant bullishness but nonetheless forced to become buyers because their short positions are so far out of the money. Basically, the guys in the fast boats convince the battleships to turn in the river. Once they turned, the bounce at 2.40 was in and we've been heading the other direction ever since.
What's the point?
Considering that the technicals in the chart above are in a position considered "bad for now, but also primed for a reversal," all we'd really need to get a fairly decent reversal would be a big enough set of events. Enter Thursday, the oasis of potential in the otherwise barren week.
Now... there's no way to know how the data will come in ahead of time. Indeed it could come in stronger and keep the bad times rolling for rates. But if it comes in weak enough--especially if there's consensus among today's several important reports--it could help trigger a shift in the technicals and at least open the door for a deeper correction heading into next week's busier calendar.
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