So far this morning, bonds have passed over the econ data in favor consolidating inside Friday’s trading range. Given the proximity of the Fed announcement (tomorrow) and the apparent importance of the Fed’s SLR extension (or expiration), it’s fair to assume that this range-bound consolidation stands its best chance to be resolved by Powell & Co., for better or worse.
It’s also possible that we’re making too much of one individual event that exists in a sea of market momentum. After all, the underlying trade is on the pandemic (case counts and vaccinations, mainly). With that in mind, as case counts have seemingly bottomed out for now, and with Spring Break bringing some resurgence concerns, bond bulls can make a stronger case (or at least “another” case) for ceiling support in yields. Past precedent shows one possible course of action, even if yields ultimately continue higher.
Here’s the “then” chart from 2018:
And the “now” chart from 2021:
The point here is that steady selling pressure is sometimes resolved with a flourish of negativity that briefly rattles markets before leveling off and giving way to a month or two of recovery. That recovery isn’t usually epic, and in 2018’s case, it obvious gave way to more selling, but at this point, 2 months of “sideways to slightly lower” in bond yields would be a welcome change of pace.
Whether or not this fractal pans out in 2021, all we can do from a technical standpoint is continue to watch overhead ceiling levels, and subsequent attacks on technical resistance targets (or lack thereof). In other words, it’s one thing to keep seeing ceiling bounces (lesser of two evils), but it would be another thing to see the previous ceilings (now floors, e.g. 1.5, 1.45) broken by a rally. Without that, we’re just acclimating to a new rate range.