Wednesday's Market Minute: Awaiting Action In Bonds

My risk radar – the red light/green light system I use to describe stocks, bonds, the dollar, and crypto on my afternoon show – has reflected the range-bound nature of the major asset classes for much of this year: everything's been yellow for some time. The exception, of course, is in stocks, which just put in a new year-to-date high last Friday.

This week, we may finally get enough information for some direction in the Treasury market. The two-year yield is pushing higher and trying to break out to a fresh year-to-date high, but the benchmark 10-year has been stuck since October between 3.5% and 4%. The range has been even tighter the last 6 weeks, bouncing back and forth between 3.7% and 3.85%. After an intense bond selloff last Thursday, it looks like bears are trying to wrest control of this market once again.

The next two days are packed with labor data, and lately our numbers have been smashing expectations. The Citi Economic Surprise rate is near the highest in two years. Everyone knows the economy has cooled from a year ago, but pretty much everyone's also underestimated how resilient it's been. Jobless claims, job openings and non-farm payrolls are all expected to weaken from their previous reading, but after some big beats lately, be on the lookout for surprisingly good data – maybe even firming. Either way, it doesn't look like it would take much to push the 10-year back to that key 4% level. 

One reason bonds have been pretty calm is that the market's expectations for interest rates has generally been in harmony with the Federal Reserve's, with both sides expecting two more hikes this year. The catch is that Jerome Powell's language has been very cautious on the economy since he decided to put his hiking campaign on pause, so any further strength at this point might force a change in calculus for interest rates over the next 6 months.

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