Bonds avoid overreacting to the Fed
July was a month with a decidedly European flair for the US bond market. Of course, domestic inflation data and Fed policy took a lot of inspiration, but much of the remaining momentum came from Europe. In general, this was a good thing, as fears of a European recession pushed bond yields lower. Today is just another installment with 10s down 6 bps at 2.745 and MBS starting higher than eighth.
As can barely be seen in the chart above, 10-year yields may have initially rebounded, but they have been rebounding quite noticeably since around 9:30 a.m. The rebound coincided perfectly with the lowest relevant technical level on our list at 2.71. Since their overshoot in April 2022, yields have not been able to cross this floor.
The implication is the same as it always has been (the same as it always has been), at least in the month following the likely June rate spike. Simply put, the prevailing momentum has been and will continue to be predominantly sideways until the data clearly indicates that price pressures are easing. It’s also possible that economic indicators will turn gloomy enough to convince markets that price pressures can only ease. The latter could induce slow runoff under technical floors. Either way, bonds are unlikely to make bolder attempts at range-breaking ahead of tomorrow’s Fed announcement.