Monday had the potential to challenge the notion of the pre-Fed consolidation in the bond market. If yields had managed to break below 1.70% and hold those gains, it would have made a strong case that the recent 1.88+ ceiling was as high as we’d see for a while. That could still be the case, but the point is that we’ll need to hear from the Fed before sorting out probabilities. 9 out of the last 12 days have traded in the 1.70-1.80 range. The Fed will likely decide whether we move up and over 1.80 or back below 1.70 on a sustained basis.
We’ll also need to continue to monitor the stock/bond relationship as big swings in the equities markets are increasingly translating to bonds. Notably, the recent correlation broke down yesterday as stocks asked bonds to rally below 1.70. Now today, after bond selling helped yields re-set (as high as 1.797 overnight), there’s more room for bonds to follow early stock losses without straying from the prevailing 1.7-1.8 range.