Last week was characterized by one big day of volume and volatility surrounding the apparently scandalous and sensational political headlines.  By now, you've either come across the news in question (regarding Trump, Comey, Flynn, Chaffetz, etc.) or are determined enough to avoid coming across political news that I won't ruin your streak of good luck.

Besides, the only important development for our purposes is the market reaction, the potential for additional market movement, and the consideration of risks to that movement.

In last week's case, the main thrust of movement accompanied the day where the scandalous/sensational news peaked (Wednesday).  We might have seen more of a reaction on Tuesday, but the news broke just after domestic markets closed. 

As we discussed last week, markets tend to trade these bombshells aggressively--usually slightly more aggressively than needed--on the day that they hit.  From there, bonds typically pull back just a bit as they wait for more info.  This assumes the news in question is relevant and not just a one-off headline that is quickly resolved (in those cases, the bounce back usually fully erases the initial day of gains).

Market movement suggests the outcome of the current political drama is indeed relevant, but the longer we go without getting a recharge (of drama), the greater the tendency for traders to lower their "risk-off" defenses.  For bonds, that's meant a slow leak back toward higher yields.

If 10yr yields cross above 2.27%, that would be the first line in the sand this week that signifies a shift away from the headline-induced rally.  Breaking above 2.31% would be worse still.  On the bullish side of the equation, we need to break below the year's previous lows in order to confirm that a broader positive shift is taking shape.  It seems almost certain that we'd need some follow-through from last week's political drama in order for that to happen.

From the standpoint of bond trader strategy, here's what I'd be thinking about:

• The natural momentum is gently higher in rate until and unless we get more drama
• The technicals suggests a short term bounce even if the longer term trend can remain positive
• There are auctions to be worked through this week and likely, a lot of corporate bond issuance adding to the supply picture
• The biggest econ data of the week arrives in a big glut with both key reports at 8:30am on Friday
• Friday is an early close for Memorial Day

With all of that in mind, I wouldn't be opposed to following the crowd toward higher yields, slowly and steadily.  If we get meaningful enough news in the middle of the week I'd be happy to help push for a reversal toward lower yields and perhaps a break below 2.17%.  Then, if Friday's econ data is strong, I'd square those positions by Friday and reapproach next week.  If econ data is weak, I'd stay neutral.