Yesterday was an important one for anyone hoping NOT to see the bond market completely give up hope in the fight against higher rates. To be fair, the fundamental realities in place over the past few years have clearly pointed toward higher rates, but there's always some uncertainty regarding how quickly we move and which levels will end up being important. With a break beyond the weakest levels in 7 years, it was (and still is) fair to wonder if we were on the precipice of a more abrupt move.
As of right now, that more abrupt move is clearly on hold. This week's strong round of Treasury auctions sends the message that there's even some sponsorship for the bond market beyond the "risk-off" motivations from European political drama. That said, if European political drama suddenly takes a less dramatic turn, rates have recovered enough from recent highs to feel some pressure (i.e. there's "room to sell" now, if the short-term beneficial inputs abate).
Indeed, today's gains were again linked to an even stronger move in Europe. Italian spreads vs Germany widened further and stocks lost ground fairly abruptly after the North Korean Summit was canceled. All of the above was bond-friendly. How, then, would bonds respond to something unfriendly? We got a bit of a hint when stocks recovered starting at 11am.
Specifically, bond yields didn't move higher nearly as willingly as they moved lower earlier in the day. This is at least somewhat reassuring when it comes to fearing for our lives in the near-term, even if it's not a guarantee of a huge continuation of the rally. Before talking about such things, we'd need to see the next technical floor broken at 2.95% in 10yr yields.