The bond market still poses more questions than it offers answers at this point

What to anticipate ahead of the US non-farm payrolls release?

10-year Treasury yields are up 3 bps to 1.248% on the day as bond sellers are wrestling back some short-term momentum after seeing yields test the July low earlier in the week.

There is a semblance of a double-bottom, in the short-term, from a technical perspective but I’m still not entirely convinced that bond buyers have thrown in the towel just yet.

There is endless talk about inflation in the market and more persistent price pressures, but that hasn’t been quite enough to sustain the story of higher yields in Q1 2021.

Some may attribute this to central banks, especially the Fed, not fully committing to the hawkish side just yet. Meanwhile, others may pin the unrelenting bid in bonds since May to more of a short squeeze – a big one at that.

However, perhaps the simplest explanation is that the market is perhaps looking through all of that as disinflationary pressures and stagflation worries win out in the long-term. A look at the trend in Treasury yields over the past few decades tells the story:

It is tough to pinpoint exactly which narrative the market is actually working with but if a strong US jobs report later today proves to be ineffective in keeping yields afloat, it will be tough for bond sellers to find reasons to convincingly fight back for the time being.

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