Beware The Bounce

No one wants to be Chicken Little when bonds are in the midst of a nice rally, but there's been no change to the recent thesis: Rates likely peaked in June and then shifted into a volatile, sideways range that would be informed by economic data.  The lower boundary of that sideways range was arguably broken last week (thanks to economic data, for what it's worth).  Taken together with the in-range rally that preceded it, this is now "the biggest 4 weeks of gains since the start of the pandemic."  Phrases like that increasingly raise the risk of a technical bounce, even if that bounce might not be that big or scary.

The chart above is arguably too much perspective for today's level of weakness.  A few hours into trading, the 8bp sell-off in 10yr yields might seem big, but keep in mind that levels of 2.65-2.68 would leave us well under the recent technical floor at 2.71%.  Moreover, such a sell-off would only serve to undo yesterday's gains--nothing more.  

Bigger movement is happening in shorter-term yields due to moderating Fed rate hike expectations for 2023.