After last week’s big CPI-driven rally, yields settled into an increasingly calm, sideways trend marked by resistance at the post-CPI lows. It would be impossible to write a more basic or obvious script for bonds given the looming Thanksgiving holiday and the subsequent week without any major scheduled data. Indeed, the biggest risk to this outlook is simply that it seems too obvious and that we just haven’t seen bonds hold as steady as the near term outlook suggests in quite a while. To be clear, we can’t make a case for 10s trading outside an absolute range of 10-15bps both this week and next, and that’s a rare enough occurrence to doubt that it will happen again (last time was September 2021).
To be clear and to reiterate, the “base case” is not quite the same as a prediction (predictions are for suckers). Rather, it’s more like saying “all other things being equal,” or “the path of least resistance.” In other words, if bonds are going to trade outside this range before December, it’s unlikely to be due to anything that’s going to transpire on the economic calendar.
What about today’s 20yr bond auction? After all, auctions have been important recently. While that’s true, it’s also true that a 20yr auction is not in the same league as 10s or even 30s. The bond market was also still finding its range when previous auction cycle happened. To be fair, a wild enough result is probably capable of spoiling our range-bound fantasy, but it would need to be very wild indeed.
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