US 10-year yields are up a whopping 13.3 basis points today and approaching the key 4.35% level. The chart looks like a rough head-and-shoulders pattern and even if you don't see that a break of 4.35% would be material. The measured target from the H&S would be around 4.65%.
What's driving the price action today?
Powell on Friday highlighted how there is no rush to cut rates and now the market is pricing in just 65 bps in cuts this year, down from 80 bps after the FOMC. For the June meeting, the odds are down to 58%.
Secondly, today's ISM manufacturing survey was on the hot side with higher prices paid as well.
Together, I don't think that news justifies 13.3 bps, especially since PCE was a touch cooler on Friday as well.
So I'm looking at the calendar and wondering if quarter-end rebalancing repressed yields last week or if there's some cash raising ongoing to deploy into riskier assets like equities to start the new quarter. There are also questions about Bank of Japan buying and yesterday's strong China PMI and the possibility of a pickup there along with the resulting global inflationary pressures.
Ultimately, I think you have to go where the technicals take you on this one. The problem is that it's not just Treasuries that will hang on the result. I break could squeeze USD shorts and sting crowded equity trades.
I'll be watching carefully this week.
