Up until last Friday, bonds had improved decisively for 5 consecutive days.  It's fairly rare to see these sorts of winning streaks last more than 5 days, and this time was no exception.  In fact, traders went out of their way to sell bonds aggressively last Friday.  It ultimately matched August 11th as the worst day of since early June.  Moreover, it did so with no provocation from the stock market.  Just a day earlier, stocks were unequivocally the source of inspiration for that 5th day of bond market gains.

Why would bonds listen to stock market weakness on Thursday but not Friday?  The easy (and incorrect) answer is that Thursday was just a coincidence and the two have no bearing on each other.  Don't get me wrong.  I'll spend just as much time debunking stock/bond correlation as I will pointing it out (usually more).   The stock sell-off was the biggest since early June, dwarfing any other attempts of the past 3 months.  Bonds weren't really trading like they wanted to rally until that stock sell-off got underway.  Once it did, its pull was undeniable.

For bonds, it was back to the business of selling on Friday.  There was probably some amount of stock market weakness that could have prevented the big bond sell-off. In fact, y ields were rising quickly in the morning and reversed course when stocks began to tank.  But as soon as stocks found bottom, bond yields only went one direction for the rest of the day.

That brief attempt to rally can be seen (barely) in the following chart.  The correlation since then is the bigger story.  It's quite a bit more than we've seen recently, and it's worth keeping an eye on as the week progresses.

Frankly, I'm surprised to see this much correlation out of the gate with Treasury auctions on tap this week.  The bond market may be telling us that huge auctions are already a clearly-defined speed bump in this environment and that it's time to look for other cues.  An even simpler possibility would be that rates are low and sideways in the bigger picture until further notice, and merely experiencing a normal amount of volatility inside that range.