10-year yields now down 1 bps to 1.486%
At the low today, 10-year yields hit 1.458% and ran into another test of its 200-day moving average (green line) - a key level that is holding since the plunge in yields last week.
As we get into European trading, we're seeing some of today's drop trimmed with 2-year yields also now down by 1.8 bps to 0.43% from a low of 0.41% earlier.
With Team Transitory fighting back, the bond market is doing a bit of soul searching once again as shorts have been squeezed in the past two weeks or so.
I'd argue that we're caught in a bit of a battle/debate right now when it comes to inflation and the bond market. While inflation pressures are set to push higher through to the opening stages of next year, the outlook for 2H 2022 is less certain.
Policymakers for one are adamant that inflation pressures will abate by then and there are certain quarters of the market who are also on that camp.
However, the question now is will we see rate hikes come along before inflation pressures start to settle down. And if so, will that help to snuff out real underlying inflation in the long run i.e. in the short-term, rates go up but in the long-term, rates may settle lower.
To me, that is the key point that market participants will have to figure out over the next few months and the thing here is that there aren't going to be any easy answers.
As such, expect plenty more volatility to follow in rates and yields moving forward.
