Remember last Thursday? Bonds had done a great job of pushing back in a friendly direction after a huge week of selling kicked off the new year. That was the day when we examined the correlation to September (here’s the commentary). After all, both selling sprees were in response to the market’s “repricing” of Fed policy expectations, and both shared similarities in terms of movement and underlying technicals. Now, a few trading days later, the correlation continues to hold, so after pausing briefly for the disclaimer about past precedent being imperfectly clairvoyant, let’s see what September has to say about the next few trading days.
Just like last Thursday, the point here is NOT to predict that rates will ultimately continue higher (although that’s an equal possibility that should be considered as a part of any rate-watching strategy). Rather, it is simply to point out that there were multiple occasions during the Sep/Oct bond sell-off where it looked like we’d turned a corner only for the selling to continue. The fact that both moves are driven by a reassessment of the Fed outlook is all the more reason to consider the risks.
Bottom line, there will be green days even in a sea of red and we haven’t seen nearly enough green to conclude the early 2022 selling trend is over.