Lead-Off Rally Extends as Traders Wonder if They Were Tricked

Yields spiked in the first half of February as the jobs report and CPI both suggested a stubbornly resilient economy and inflation outlook.  That was January data.  Now that the market is getting to see and digest February's data, things are starting to change.  Traders are increasingly thinking about concepts like "residual seasonality" in price indices for January as well as the tendency for NFP to beat/miss in a big way only to reverse course in the next month of data.  The extent to which the market would need to reprice borders on 'extreme' in the event of this sort of data volatility in the next week and a half.  There's no solid reason to assume that will happen, but today's ISM services data fires another warning shot.

Taken in conjunction with last Friday's ISM data, the market is quickly shifting its perception of how this week's jobs report may come in.  There could even be some hope for next week's CPI although the components keeping that data elevated are not well-reflected in the ISM reports.  Even so, it's been enough for a noticeable lead-off from the recent range.