For the second day this week, bonds are off to a stronger start. The pattern is similar to last week where yields hit new long-term highs on the first day and then consolidated toward slightly stronger levels in subsequent days.  The broader pattern in January is similar to late September--the last time the market rushed to reposition for a shift in the Fed policy outlook.

There's certainly a case to be made that a moderate, mid-week rally is a trap in this environment.  From a strategy standpoint, the rally is guilty (of being a trap) until proven innocent (by a bigger, more sustained rally than last time).  Even then, we won't really know what's what until after next week's Fed announcement.  There may be some ebbs and flows that create lock/float opportunities between now and then, but no crystal balls.

In other news, we're getting lots of questions about whether the potential conflicts in Ukraine or Taiwan will save the bond market.  The answer is "no," probably.  Unless an all-out war breaks out, the market already has a script for the Russia-Ukraine conflict from 2014.  They were the two most boring months of the year, and wholly overshadowed by the ECB's QE roll-out.

Taiwan is another discussion for another day.  I don't know enough about it to comment on probabilities, but I do know it's not as simple as "war = geopolitical risk = bond market rally."  One great reason for that is very near and dear to our inflationary hearts in 2021.  Ever heard of the chip shortage?  And do you know which country makes almost all the chips?  Could the supply chain once again be adversely impacted if that country was at war?