The longer-term rising rate trend kicked into higher gear in February. After several false starts, bonds are in the midst of their best attempt yet at a ceiling bounce. What will such a bounce look like? How will we measure its progress? To start, the primary concern is simply avoiding a break above 10yr yields of 1.75% (aka a “sideways victory”). This helps build a case for rates leveling-off and embarking on a more horizontal trend.
The first benchmark of a successful consolidation attempt would be a break below 1.62 and/or 1.60 depending on your preferred nearby floor (cases to be made for both). If yields can’t break those floors, the implication is for a shorter-lived consolidation that gives way to another ceiling break and new ceilings to be explored in the 1.84-1.95 range. If the floor is successfully broken, it would suggest a wider sideways range for several weeks, with the next major floor at 1.50% (then 1.38).
A full-on reversal to lower rates would be a tall order–one that likely requires some form of big, new inspiration. Could today’s Fed meeting minutes provide such inspiration? That’s not at all likely. There’s little–if anything–the Fed could have said at last month’s meeting that would surprise the market. They’ve provided ample communication on their policy approach, and most of them seem to be in agreement that the tapering conversation hasn’t even been opened yet–nor will it be until a significant amount of progress has been made on their goals (much bigger labor market recovery, and sustained 2%+ inflation). Big, shocking moves aside, a modest, in-range reaction is always a possibility in the wake of Fed Minutes releases. We’ll find out at 2pm ET.