Despite US markets being fully open, today managed to take the extended holiday weekend vibe and amplify it. What is this vibe, you ask? Nothing too crazy... I'm just referencing the decreasing volumes, lighter liquidity (i.e. fewer buyers and sellers at the same price, regardless of volume), and consistent seeking-out of central technical levels.
Case in point, bond markets started out in unchanged territory (in line with Thursday's weaker levels) and soon found reason to head back toward the lower end of the recent range, without regard for the economic data. In other words, if bonds were interested in reacting to the data, they had a good chance to do so after the 8:30am consumer spending data came in with a big negative revision (+0.1 vs +0.5 previously). Instead, they waited until roughly 10:30 to make the bigger positive move of the day.
The rally may or may not have had much to do with news that the widely-followed GDPNow figures from the Atlanta Fed were updated to show a sharp contraction in Q1 GDP growth (from +1.4 to +0.6). In turn, the subsequent sell-off may or may not have had much to do with corporate bond issuance that was happening around the same time. What's more interesting is that trading levels precisely sought out intermediate moving averages that are associated with a LACK of conviction. In other words, bonds are heading to the proverbial sidelines, likely in anticipation of bigger news ahead. This could come in the form of a speech from Yellen tomorrow or the economic data in the rest of the week (including NFP Friday).
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