Yesterday marked the most abrupt day of selling in bond markets since the end of July. In some ways, it was a wake-up call as to the time of year, the recent complacency, and our place in the range.
We talk about ranges in terms of 10yr Treasuries most frequently because they're the best benchmark we have (by far) for the broader ebbs and flows in domestic interest rates. With that in mind, the 2.3's are a historically important inflection point in the long term range. Here's why:
Basically, 10yr yields have only crossed this line once since 2010. The only other time in modern economic history was at the end of 2008 at the apex of the initial bond rally of the financial crisis. Crossing such an inflection point would be significant, and it's significant that it hasn't happened yet.
Markets are aware of that significance and there's always some measure of concern that any strong selling pressure beginning in the 2.3's could be "the big one" in terms of bounces. Markets are also aware that European QE potential and general economic/inflation weakness may well continue to act like a wet blanket on domestic yields.
To that end, we get another piece of information (probably) about EU QE prospects on Thursday with the ECB Announcement and Draghi Press Conference. So if we're waiting until then for the start of the week's big events, why would today matter?
It all goes back to that "place in the range" combined with the strong move higher in yields yesterday. It's not uncommon to see a substantial "lead-off" ahead of important market events, and if the fates conspire against us, today could be one of those days. If we want to be more empirical about it, we can simply look at the recent downtrend in yields and watch for any meaningful break of the upper range. No break, no worries.
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