In the day just passed, bonds extended a faster-paced rally that began on Tuesday following the ISM Manufacturing data.  It wouldn't be fair to say that traders woke up and said to themselves "you know what?  I think I'm going to buy some more bonds today because of yesterday's news!"  Instead, the bond market looked content to hold steady until the stock market began tanking.

I offer frequent reminders about how stock prices and bond yields are not joined at the hip, but when stocks are losing enough ground, we almost always see bonds step in to absorb some of the panicked cash seeking the sidelines.  That's exactly what happened yesterday and exactly why the correlation was strongest when stocks were the lowest. It was a classic flight to safety.

In the day ahead, we get the 2nd of the week's 2 versions of the ISM data.  ISM stands for Institute for Supply Management, the largest and oldest supply management non-profit in the world.  After the mighty nonfarm payrolls data, the ISM reports are in the running for the biggest and most consistent market movers when it comes to economic data.  We saw evidence of that on Tuesday, of course, but that was also the weakest reading in a decade.

Today's ISM report is on the services sector (aka "ISM Non-Manufacturing").  The services sector has been much more insulated from the impacts of the global trade war, but analysts and traders increasingly expect to see spillover.  Specifically, when weakness in the manufacturing sector is pronounced and sustained, dominoes begin to fall.  Consumer confidence begins to wane as stocks respond to the manufacturing drama.  Business confidence issues crop up.  Eventually, the turmoil created in the manufacturing sector has a material impact on the non-manufacturing sector.

Once that is happening on a consistent basis and in grand enough fashion, the fear is that the negative economic momentum becomes self-sustaining and domestic growth heads in a recessionary direction, even if things remain infinitely more orderly than the last two bonafide recessions.

In terms of the trends and technicals, 10yr yields are arguably in the friendly trend channel marked by the yellow lines below.  They've tested the floor and ceiling of that channel on several occasions and begin today pushing the floor.  A breakout implies a test with 1.54, but we're more concerned with a move back in the other direction in the event of strong data.  The first ceiling (where floaters may think about locking) is at 1.62.  After that, the upper yellow line would need to break before assessing the next ceiling at 1.67.  More risk-tolerant floaters would be making longer-term, bigger-picture decisions at that point.