One short week after hitting the worst levels in nearly 7 years there's suddenly a semblance of hope again for bonds.  It was one thing to see last Friday's correction--which merely stopped the most abject bleeding--or the first 2 days of indecisive stability this week.  It was another thing to see an unmistakably strong rally yesterday followed by even stronger levels today.

The critical development over the past 48 hours for US bond markets has been the break below the 3.05% floor that had blocked progress since last Friday.  If we wanted to be extra cautious about where we set our technical levels, we could use the previous 4-year ceiling of 3.04% and reserve judgment until bonds broke and closed below.

With yields starting out the day well under 3.0%, it seems like there's not much risk that this technical break will fail.

The big question: is this the beginning of a bigger bounce off this long-term ceiling?  While that's always possible, it's good to remember what long-term ceiling bounces have looked like so far this year.  The first came in February and resulted in a rally that could best be described as "sideways to slightly stronger."  The next bounce at long-term highs can be seen on the chart above in late April.  It had such a small effect on rate sheets that it's not really fair to call it a bounce--more like a leveling-off.

Add to this the fact that we're heading into Memorial Day weekend and we can be sure that more than a few traders have squared up trading positions (i.e. they've gotten neutral).  In a market that is predominantly betting on rates moving higher "getting neutral" means buying bonds.  I'm more interested in what momentum looks like when they get back into the office next week as that will tell us more about the potential for this week's bounce to have longer-term staying power.

Caveats aside, it's still better than a sharp stick in the eye (or a continuation of last week's selling, if you're not into pointed metaphors).  The gains create opportunities for all types of risk profiles.  Conservative clients can use it to take advantage of short-term lock opportunities.  Risk-tolerant clients can use it to enjoy some breathing room between current levels and overhead lock triggers (2.99-3.00 on the conservative side and 3.04-3.05% on the riskier side).