Today's key events arrive in the afternoon in the form of a 5yr Treasury auction at 1pm and the release of the FOMC Minutes at 2pm.  Not to be confused with the Fed Policy Announcement, the Minutes simply provide a more detailed account of the meeting 3 weeks prior that culminated in the most recent policy announcement (in this case, Jan 31st).  Because that was a meeting with no rate hike, these meeting minutes are seen as a prime opportunity to foreshadow a hike in the March meeting.

Even though the Fed Funds Rate doesn't move in lock-step with longer-term yields, it's important to know that the entirety of the yield curve moves up in anticipation of an eventual peak in the Fed Funds rate.  As can be seen in today's chart, sometimes 2yr and 10yr yields follow the rise in Fed Funds fairly closely.  Other times, they overshoot the target and the Fed ceases rate hikes earlier than Treasury yields seemed to suggest.  

The good news is that 2yr yields are currently rather far ahead of the Fed's rate hike pace.  More often than not, they tend to jump higher at a faster pace early in the hiking cycle and then slow their upward pace as the Fed is seen getting closer to their ceiling.  In cases like the mid 90's when yields overshot the Fed, Treasuries end up rallying sharply to get back in line.

The other good news is that longer-term yields are only taking so much guidance from the Fed and shorter-term yields.  See 2004 for a great example of that.  

The takeaway is that the 2yr yield is already pricing in about 4 hikes from here.  Given that several Fed speakers have indicated we might not see much more than 4 more hikes in this cycle, there's a case to be made for that leveling-off process to begin in bonds.  Keep in mind, however, that "leveling-off" doesn't mean moving lower in yield necessarily. 

It can also mean "moving higher less quickly," or "consolidating sideways before choosing whether they've undershot or overshot the Fed's hike path."  An example of this last option was seen in 1994 when yields began consolidating only to shoot quickly higher as Fed hikes continued.  Ironically, the consolidation area happened to be right on target for the Fed's eventual ceiling, thus the epic rally in 1995.

Today's 5yr Treasury auction is seen as challenging largely because it's an hour BEFORE the Fed Minutes release.  5yr Notes are like a cross between 2s and 10s--on the one hand, short enough to be sensitive to the Fed's outlook.  On the other hand, long enough to express similar concerns to 10yr notes.  This anxiety is priced-in to a certain degree.  If the Fed Minutes are less hawkish than expected, the reversal of that auction anxiety could be helpful in the late afternoon.