Pre-Fed Narrative Sails On, But Timbers Nearly Shivered

Arrr, me hearties! Last week, there be a mighty surge towards them long-term highs in the Treasury yields. But alas! With no bounty of econ data to stir the souls of treasure seekers, the market With no grand loot of data on the horizon, the market be more inclined to keep powder dry afore this Wednesday's reckoning with the Fed. This tale nearly met an early end after the market took a cannonball shot in the mornin', makin' us all clutch our doubloons as 10s had a scrape with new multi-decade peaks. Alas, fairer winds prevailed and the ship stays afloat for its date with destiny.

In English now (debatable):

After last week's surge toward long-term highs in Treasury yields, and with an absence of big ticket data on the horizon, odds favored a sideways consolidation ahead of this Wednesday's Fed events. That remains mostly true, but only after markets recovered from a threatening morning sell-off. 10yr yields technically hit new multi-decade highs, but only by 1/100th of a percent. Bonds seem to be calming down since then. Most of the movement was attributable to positioning as opposed to organic reactions to data/events.

We've seen plenty of discussion and questions about the role of oil prices in the current bond drama.  The simplest way to to think about oil is that it is, of course, an input for inflation, and thus of some consequence to bonds.  Additionally, in a vacuum, it's also an economic metric (higher = stronger economy, all other things being equal).  That said, it can also suffer from temporary headline-driven distortions as well as longer-lasting trends in currency valuations (i.e. the Euro currency deflation in 2014 led to a huge drop in oil prices as U.S. currency strengthened).  Either way, traders can't help but consider the general suggestion in the chart since mid August.  Maybe the Fed will talk about it tomorrow...