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Acceptable Consolidation After an Epic Week

Bonds are starting the new week in slightly weaker territory.  There are not compelling motivations for the move in terms of data, events, or headlines, but that doesn’t mean we don’t have any justification.  In fact, a rally as big as the one seen during the previous 3 business days is often followed by at least a temporary correction/consolidation.  Depending on the broader context, these corrections can last a day or significantly longer.   In some cases it is actually the big initial rally that is the correction before the longer-term trend continues (as seen in the chart above).  While that gloomy eventuality can’t be ruled out, it would depend on economic data and inflation in the coming weeks and months. Either way, we now have a few useful pivot points overhead.  These levels don’t predict the future, but if yields break and hold above these levels, it would be a bit more bearish than another random move higher.  Another way to use this chart would be to conclude that a correction in yields isn’t too troubling until it starts breaking these ceilings.

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