Respectable Recovery. Is It a Trap?

Respectable Recovery. Is It a Trap?

First thing's first: the parabolic flourish of bond selling of the past 2 weeks is arguably unprecedented in recent memory. Specifically, we've seen similar levels of overall weakness over similar time frames, but we haven't seen the same sort of concentrated acceleration of selling at the tail end of a months-long selling trend. The only remotely comparable precedent was late September 2023 when a Fed dot plot surprised the market with a higher rate outlook followed by 2 weeks of stronger-than-expected econ data. There was a decent recovery on several occasions on the way up, but a sustainable recovery didn't start until early November. Throughout that process, it was data that set the tone. With that in mind, we're heading into a week with big-ticket data and we expect bonds to take cues accordingly. Of course oil and war headlines continue to matter as well. While today's recovery was "nice," it doesn't make any guarantees about where we'll end up next week. That said, it very well could indicate that bonds have sold as much as they need to sell unless next week's data/events add additional provocation.