Bonds ended the previous week at the highest yields since before the December Fed announcement.  The story behind the that story is that yields were roughly unchanged from opening levels on Friday, despite high volume responses to the jobs report and ISM Services data.  The sideways grind speaks to the latest dose of uncertainty (and the fact that last week's data wasn't able to clear it up).  Now at the start of the new week, trading levels have improved, but not beyond the range seen on Friday.  If we could only focus on one calendar event with power to add clarity to present trends, it would be Thursday's CPI.  Between now and then, the Treasury auction cycle (Tue-Thu) may provide some context on the palatability of sub 4% 10yr yields.

In terms of recent trends, it can increasingly be argued that the downtrend seen in Nov/Dec is over and that a smaller countertrend (yellow lines) is intact until further notice.  We wouldn't think much of the new uptrend until and unless it took yields up an over 4.09.

We discussed a question on MBS Live this morning regarding the potential influence of oil prices on bonds.  Because oil is always a consideration for inflation and inflation is always a consideration for rates, it would be foolish to completely ignore the relationship between oil and rates.  That said, it's a complex relationship.  At any given time, other factors may be weighing on one or the other in such a way that the correlation completely inverts.

The following two charts look at short and medium term examples of those inversions.  The third chart shows broader correlation in the long term.