And so, what does that mean for broader markets? Let's take a look.
Even with a stronger 20-year auction in Treasuries yesterday, it is doing almost nothing to stop the puking in bonds. Evidently, the waves of supply and the fact that the Fed can stick with a higher rates for longer narrative is the more important thing right now.
10-year yields are set to clip the 5% mark soon enough so what can we expect when they do get there?
For one, the pressure on equities is resurfacing with the Nasdaq posting its lowest close in two weeks after a 1.6% drop overnight. The S&P 500 also ended 1.3% lower, failing to push towards a retest of its 100-day moving average.
That being said, there is no material breakdown yet in the equities space and we'll see if there will be added pressure once rates touch 5% soon enough.
Besides that, one thing to be mindful about is actually the lack of follow through strength in the dollar over the last one week or so. EUR/USD is still holding above 1.0500 and USD/JPY is unable to even muster enough confidence to challenge the Tokyo intervention mark at 150.00 again for now.
On the latter, judging by the correlation between 10-year Treasury yields and USD/JPY, we should be trading closer to 152.00 rather than 150.00 currently. But of course, Tokyo intervention remains a big psychological barrier that is in consideration. So, will 5% yields change that viewpoint? We'll see.
As we approach the 5% level, I can't help but think that the bond rout might trigger a sharp retracement upon hitting the key level. All that before we start getting used to talking about 5% again in the days/weeks ahead. It's a familiar playbook to when we hit 4% in July and 4.30% in August.
