Bonds are still in the process of trying to find a ceiling after embarking on a decisive uptrend that began in the middle of last week and accelerated after Friday's NFP beat.  In addition to Treasury auctions this week, the bond market is also digesting a very big slate of corporate bond issuance which puts upward pressure on yields, all other things being equal.  We need to get through the Treasury auctions (Tue-Thu) before having a clearer sense of where the new ceiling might be. 

At times like this when yields/rates are in the process of moving up fairly quickly after having made it to surprisingly low levels for several weeks, it's natural to wonder if this is the big bounce for the most recent major trend (in this case, the rally from April through July).  After all, we broke above an important technical ceiling yesterday at 1.30 and look set to 'confirm' the breakout by adding to losses today.

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It's also natural to wonder if 1.30 matters any more than 1.44 in the bigger picture.  Perhaps this is just an expansion of a low, sideways range that waits for further information on covid and the economy.  

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Bigger picture aside, when we see 4 days as week as these past 4, some sort of short-term recovery is nearly certain.  If we see it take place today (i.e. bonds turn green by a few bps) it would be tempting to conclude a good amount of underlying bullishness remains in bonds.  Seeing it tomorrow or the next day carries no implications for what comes next.

Back to the bigger picture again...  The general notion of "what happens next" could be as simple as learning what happens with the current wave of covid case counts and deaths.  Other countries (particularly the UK) offer examples of how and when this wave could die down.  If the US follows a similar pattern, the market's reaction function has been fairly clear: when deaths are falling, rates are rising--all other things being equal.

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It's too soon to count on deaths declining considering the ongoing surge in cases (even though deaths are far lower relative to the number of cases).  This, combined with the passing of the week's heavy supply demands (Wed or Thu afternoon, depending on how one views it) give bonds their best shot at holding a supportive ceiling or even recovering some lost ground this week.  If such a recovery doesn't materialize, it would be a strong vote against a quick return to last week's lows.