2 weeks ago, we talked about 2021’s Thursday curse. It was finally broken last week. Today’s early gains mean we may be looking at a second consecutive winning Thursday for bonds, but we’ll reserve judgment until the close. Even if yields end up lower, the significance of any rally is limited without a break below 1.62% (10yr). After that, 1.58+ is an equally important floor. Remaining above those levels isn’t necessarily bad. It just means that the departure from 2021’s rising rate trend is taking a more consolidative (sideways) approach (which is the higher probability outcome in the first place).
What has happened in the past when rates have embarked on similar consolidations? Here are the most relevant examples:
But in fairness to the current move, it’s already much bigger than any of the past examples if we’re only measuring from the lowest yields to the first (or second) consolidation(s). In that sense, it’s easier to liken the current environment to the 2 biggest sell-offs in the past decade (something we’ve done quite a few times recently). In so doing, it’s tempting to conclude that we’ve seen the highest yields we’re going to see for most of the rest of 2021. Tempting, but not necessarily correct. We have to consider the extreme differences in the fundamental underpinnings of the rally and sell-off surrounding coronavirus. In other words, it’s too soon to declare victory, and we can’t rule out that 2021/22 could end up looking more like 2017/18 than 2013/14.