In the week just passed, bonds began to settle into a range after the sharp move lower in the previous week (driven by flaring trade tensions).  This settling process didn't truly emerge until Thursday.  Before that bonds rallied hard into Wednesday morning mostly on follow through from the week's early move (which was driven by China's "doubling down" response on Trump's tariff tweets). 

The follow-through brought a European component into the mix as German Bunds surged to new all-time lows.  A sharp bounce on Wednesday afternoon (right after European markets closed) set the stage for a complete reversal of the trend.  Thursday morning weakness added to the case but bond yields couldn't make it up and over 1.80% before the consolidation momentum kicked in.

In the week ahead, bonds will have an opportunity to build on that consolidation theme, which is seen in the yellow lines on the 10yr yield chart below.  This is definitely the most aggressive placement for the consolidation lines.  In other words, it's as narrow as we can draw them and it wouldn't be a surprise to see them broken even if the general sideways momentum continues.

It will take a combination of moderately important developments or a single massively important development for the sideways momentum to be overtaken by something more directional.  The nice thing about the trade war narrative is that positive developments are harder to price because it's harder to know what the long-term effects will be (or if new terms will be honored as written).  Contrast this to every little escalation in tariffs and general trade tension which has been much quicker in translating weakness in the manufacturing sector and business confidence.  In other words, this is a comparative advantage for bond market bulls.

It may seem as if economic data has taken a back seat to trade war headlines, but rest assured, if several important reports start singing similar tunes, it's more than enough to  move the needle.  The only catch is that it's not just US data that matters in that regard.  Chinese and European data would need to concur.