Do not take your eyes off the bond market
10-year yields saw a solid rebound yesterday, continuing the bounce from Tuesday, to 1.28% and is sticking thereabouts today.
The bounce is an interesting one from a technical perspective, as the candles may suggest a continued upside move but there are some testing levels in the form of the 200-day moving average (blue line) and the 1.30% psychological level.
I reckon if yields can move above the latter, that will provide much added comfort to the market that Monday's risk selloff was more of a blip and some correction after equities have been hovering around the highs in the past few weeks.
The Fed meeting next week will be the crucial risk event and the question for yields isn't so much so whether or not it will rebound back to 1.70% from here but rather, will we consolidate at a higher range or is the downtrend in the past two months not over?
Inflation expectations have come off recent highs and that either signals the market syncing to the Fed's narrative of patience or that this is all transitory and what has been priced in for 1H 2021 isn't going to materialise more meaningfully.
Until we have a clear answer on that, there might be more messy days to sort through.
But for now, central banks can be said to be winning - even if not for the right reasons.