The holiday trading session was dominated by another snowball sell-off in British bonds with the UK 10yr yield rising more than 30bps. Much like last time, US yields were pulled along for the ride with the 10yr just barely breaking above 4%. Unlike last time, US bonds have been able to recover rather well even though UK yields remain elevated.
If the scaling of the previous chart makes the US outperformance hard to see, the following chart zooms in to make things more clear. Keep in mind that the y-axis scaling is different in the following chart. In both cases, US yields are on the right and UK yields are on the left:
The absence of trading on the left hand side of the chart above (in US 10s) is a factor of yesterday’s holiday closure.
In the bigger picture, this means that 10yr yields have once again defended the 4% ceiling. That’s not so much a new revelation as simply a confirmation of our current assumptions. Specifically, bonds are in a new, higher range after the last Fed announcement and they continue waiting on the biggest-ticket economic reports to inform movement inside that range or breakout potential.