We had a good run last week of modest gains that followed the abrupt selling-spree that began in late October.  In other words, rates rose quickly, but finally looked to be leveling-off and perhaps gaining some ground.

Throughout that process of bouncing back, I'd flown a warning flag of sorts, advocating caution due to the nature of so-called "consolidations."  This is just a more confusing way to talk about trading prices/yields leveling-off after a brisk move in one direction or another. 

Shockingly enough, consolidations don't predict the future.  They can merely serve as a pause for markets to catch their breath before continuing with the move, or they can be the first indication that investors are ready to step back in and trade in the other direction.  Trying to determine which version we're looking at is all the fun.

Part of the framework for making such predictions is the surrounding fundamental environment.  On the negative side of the equation, we have the Fed's nearly certain rate hike in December.  That doesn't leave a lot of room for big moves lower in yield until it actually happens.  On a positive note, we have the same global economic malaise that got us here in the first place.  It's not magically disappearing, but is it enough to push back against what looks like it could be another example of rates consolidating only to move higher?

If you can wrap your mind around the thesis that current trading levels have fully priced-in a Fed rate hike and that current trading is more about pricing the path of future rate hikes, then we can afford to actually pay attention to the economic data.  Indeed, economic data SHOULD matter in that case, and indeed it might.  But the contrarian point of view is that the Fed is motivated by what they think will happen to inflation in the future.  It would take a very big miss for markets to start questioning their resolve.