The flight to safety trade has been dominating markets in the past week with bond yields hitting their lowest levels since January 13th yesterday and oil prices soaring over $100.  Stocks have been more of a wild card, having been able to put their lowest levels behind them as of last week.  With oil and bonds sending more complicated--sometimes conflicting--messages, stocks help cast a tie-breaking vote on flight to safety trading. 

With that in mind, S&P futures are currently up more than 1%, suggesting the risk-off momentum is taking the morning off.  It's too soon to know if this is merely a consolidation of the massive rally seen so far this week or if it's a turning point in the push toward lower yields, but it's been substantially unpleasant for bonds so far.

The longer term chart is more telling when it comes the recent departure from normal bond vs oil correlation.

When I look at the chart above, I see an economy that's been growing and reflating since the bottom of the pandemic.  And I see the last 3 weeks and especially the last 2 days as a quick flight to safety due to the Ukraine situation. Whether or not the flight to safety has any additional chapters depends on what transpires in Ukraine.  Incidentally, we're also seeing some ill effects from a tremendously large slate of corporate bond issuance today (accounting for 25% of the weakness if I had to guess).

All that to say that, while bond losses are very scary this morning, this move isn't necessarily conclusive evidence of the big bounce.  It may, however, be the end of the brief correction in the yield curve and Fed Funds Futures seen since the start of the Ukraine invasion.  It's extremely interesting and notable to see the effects limited to the longer term rate hike outlook as opposed to the 25bp vs 50bp debate for the March meeting.  The following chart says the same thing we've been telling you for weeks: 50bps was never likely, and betting markets just got ahead of themselves.  Meanwhile, Ukraine fears and consequences for monetary policy are more easily seen in the December meeting numbers.