Over the past two days, we saw a surprisingly strong move higher in European bond yields that spilled over to US bond markets.  The effects were muted, by comparison, but still plain to see.  This might not have been the case had domestic markets been more active, or at least less sideways and confused.

The European volatility is ostensibly due to today's ECB Announcement.  If US bond markets were 'sideways and confused' until the European volatility showed up, and now the event causing the volatility will be behind us by roughly 9-930am this morning (that's when Draghi would be done talking), it begs the question: what next?  Are we headed right back to sideways and confused?  Unless there's a legitimate surprise out of the ECB, then yes... probably.

Questions beget questions, so let's be getting to the next one: why are we sideways and confused in the first place?  Thankfully, we've discussed this quite a bit.  This old post from July captures the general thesis.  That's the one where I said (or 'asked,' rather):

What if it's all not enough--the multiple iterations of QE at home, ongoing QE abroad, ultra low rates for longer than they've ever been ultra low, and a generally consumer-friendly inflation environment, among other things? What if this is not enough to get the engine of global growth firing on all cylinders? What if early 2015 has just been a pause for reflection and the decades-long bull market in bonds actually gets back on track in the second half of the year? This is a question that has increasingly been on investors' minds as they ponder the Fed's rate-hike rhetoric. Is 2015 really the best time?

10yr yields were as high as 2.29 on the day I wrote that, and at the time, we didn't have any major reason to believe that markets would soon begin trading with that question in mind.  In fact, it took stocks a while to acquiesce whereas bond yields began dropping about a week later (at the end of July).  It took the Chinese currency drama to get stocks into sell-off mode.  Ever since then, they've been trying to bounce back, but have been increasingly frustrated by the 2023-2030 technical zone.

A major break back below this technical zone would very likely coincide with an intermediate technical victory for bonds.  That could see 10yr yields back under 2% at first, and then testing 1.90 if a larger stock sell-off materializes.