June's Theme Continues: Sideways and Choppy at Weaker Levels

Heading into this week's CPI and Fed Day combo, we expected bonds to be broadly sideways with elevated volatility.  But rather than give new direction, this week's big ticket events have only perpetuated the sideways-ness and increased the volatility.  Even the non-big-ticket events have had a say.  Thursday's Jobless Claims was as big a market mover as anything.  Now on Friday, a few Fed speakers and the Consumer Sentiment data are adding ups and downs for yields (mostly ups).

The initial rally phase was driven by a sharp drop in 1yr inflation expectations inside the sentiment data.

Despite the improvement in inflation, the underlying trend is economically bullish for sentiment (and that's bearish for bonds).

But it's not as if the market only saw one part of the data and then magically realized there was more data to trade.  Rather, the market was already in the process of selling in response to Fed comments.  The sentiment data merely provided a brief push back in the other direction.