US 10-year yields are at a two-week low, down 4.6 bps to 4.188% and at the lows of the day. That comes after a strong seven-year auction to follow up on yesterday's firm 5-year result.
The auction sizes this week are huge but the demand is there, at least in terms of quarter-end flows.
The fall today took out the 200-day moving average at 4.20% but that hasn't been a particularly important level. More important is that this week's test of 4.35% was rejected. However there is also a series of higher lows on the chart, creating an up-sloping trendline that's being tested.
Here's BMO: "The opening gap from early-February remains our ultimate target and comes in at 4.020% to 4.034%. Eventually, this gap will be filled – the only open question is whether it’s a Q1 or Q2 event."
So what breaks the range? It has to be economic data. Today we will hear from the Fed's Waller and there are some worries he could be hawkish, the best bet is he puts the focus back on the incoming numbers, starting with PCE on Friday.
Beyond that we will get non-farm payrolls and the latest round of ISM numbers. So far, it's tough to find any real signs of economic weakness but there have been some anecdotal reports of weaker spending on restaurants, and hotels. Those are often the first to go.
On the upside, it's all about inflation. If growth and prices stay sticky, then the Fed could abandon the rate cutting bias and then we could run all the way up to 4.75%, though the upside would (IMO) be more pronounced if the inflation data continues to come in high and the Fed ignores it.
