A few notes on the bond market's recent plans:
First few days of 2020: Come into the new year ready for that break above 2.0% that everyone was expecting, but equally ready to react to unexpected geopolitical risk due to US/Iran conflict. Result: move to lower yields.
Next few days of 2020: No war with Iran. Result: start moving back toward higher yields
A few days after that: Detect the faint grumblings of epidemiologists identifying a new disease in China that sounds like it could maybe be like SARS. Result: stop pushing yields higher and wait for more info.
Week ending Fri, Jan 24: Realize (along with the rest of the world) that this coronavirus thing could be serious. Result: set up shop as one of the most preferred safe-havens for the coronavirus panic trade.
2 weeks ago: kick that same trade into higher gear. Result: new long-term low yields (multi-month) and 3.5-year lows for mortgage rates (because mortgages didn't drop as much or as quickly as Treasury yields last summer).
Last week: Begin to adjust for the fact that coronavirus counts are decelerating and the possibility that we're turning a corner. Remain nimble and skeptical as this could be a head-fake because it's the first bounce. Result: yields move sharply higher, but recover before breaking up and out of the coronavirus range.
This week: slowly begin retracing last week's steps as the consensus, once-again, is that it's time for the market to price-out the coronavirus panic (hey, look at all-time highs in stocks!). But temper the will to sell all the bonds with the fact that coronavirus will definitely do some global economic damage. Add ongoing Fed friendliness to the mix. Result: resume the slow, steady upward momentum, but don't take things quite as fast as stocks. After all, the coronavirus de-escalation and the friendly Fed both put upward pressure on stock prices whereas the two same factors apply opposite forces on bond yields (i.e. coronavirus containment pushes yields higher while a friendly Fed argues for flat-to-lower yields).
Are things just about that simple? Yes, but it is admittedly an oversimplification to say the only source of bond resilience is the Fed. The Fed is certainly in the back of traders' minds, but so too is the risk that global economic data takes a bigger-than-expected hit in February due to coronavirus. Either way, bond yields remain under upward pressure, but it's not excessive at the moment.