Bond markets came thundering in to the domestic trading session today, largely following equally thunderous moves in equities and European stock/bond markets. The beginning of the domestic session marked the bottom in yields for the day, but it wasn't a lopsided battle until the end of the day.
During the morning hours, stocks and bonds ebbed and flowed together, surrounding Yellen's 2nd round of congressional testimony. Bond yields rose in anticipation that she'd do a better job of soothing markets today. Yellen instead seemed to take recent market turmoil as well as the topic of a negative Fed rates less seriously than markets might have hoped. Stocks sank back to their lows and bond yields followed.
It wasn't until the afternoon's 30yr auction that bond markets showed noticeable signs of fatigue. After all, 10yr yields made it as low as 1.53 at the beginning of the day. It's understandable for traders to take a moment to pause for consolidation. The rotten auction served as the cue to cash in today's chips. Tomorrow's momentum will be very informative, although we did see enough buying today, even near the stronger levels, to legitimize the trend overall.
To clarify, any time bonds move as much as they have, risks increase that the consolidative pull-backs will be bigger and longer. As such, if we lose ground tomorrow, it could look fairly serious. If tomorrow doesn't bring a fairly big sell-off, it will tell us a lot about investor psychology.
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