The new, holiday-shortened week begins in much the same fashion as the previous week ended: with bond markets considering whether they are under pressure to bounce into weaker territory in the long term or simply undergoing a normal consolidation amid a larger-scale trend.

That large-scale trend, of course, has been quite positive for bond markets.  Treasuries and MBS made their strongest intraday move last Thursday (10yr yields hit 1.53), but have been looking increasingly serious about bouncing in the other direction since then.  Concomitant moves in stocks and oil prices haven't been helping, but there are some silver linings.

First of all, the correlation between bonds and their riskier counterparts isn't flawless.  Bonds won't necessarily have to lose ground if stocks and oil are simply experiencing corrections after heavy selling.  Additionally, the rally in bonds has been aggressive.  Last week's strength carried trading levels well outside the established trend.  In that sense, we can't yet rule out the possibility that bonds are merely returning to the previously-established trend (as seen in the lower portion of the following chart).

We closed out last week expecting this week to hold more answers about whether this is a big-picture bounce or shorter-term correction and that continues to be the case.  In assessing that, we can keep an eye on bonds' willingness to continue to follow stocks and oil as well as key technical levels, such as the long-term inflection point of 1.84% in 10yr yields.  Essentially, we'd want to see that hold up as a ceiling if we're to remain in a more bullish long-term frame of mind.

The week's economic data may offer some input on deciding our fate, but the relationship between econ data and bond markets has been hit-and-miss.  The most capable contenders will be Industrial Production on Wednesday morning, FOMC Minutes that same afternoon, and the Philly Fed survey the following morning.  Each of the other days also offers some input in the form of moderately important economic data or speeches from FOMC members with the latter being particularly prevalent to kick things off today (Harker at 9am, Kashkari at 1030am, and Rosengren at 730pm).