It looks like Treasuries want to test 4%.
Back-tracking a few weeks, the 3.6% level was a recession trade but with the US economy looking stronger now, it's safer to price the bottom of Fed funds at 3% or 3.50%. Add in some term premium and 4% makes sense.
I expect some strong bids if 4% is touched because that's something of a FOMO level but ranging in the 3.80-4.00% zone sounds compelling. Perhaps the case is for upside from there, particularly if China continues with stimulus and oil continues higher, re-igniting inflation fears.
The dollar is more-tied to the front-end but you can see the similarities with USD/JPY as it's also testing the early August highs.
I suspect we take a break here as we wait for the CPI report next week but right now it's tough to fight the US dollar.
