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To trust the bond market or not? That is arguably going to be a key question for other asset classes in the days ahead as 10-year yields retreated further yesterday to near 1.35%, testing the lows seen in June.
There was a strong case to make that the retreat from 1.75% was more technical and a bit of a short squeeze but there was some decent haven flows yesterday adding to that, but the chart is getting harder and harder to ignore.
The Fed minutes later will be the key risk event but if the bid in Treasuries continue, that could spark some degree of risk aversion as it unsettles market sentiment.
The dollar may still benefit slightly the yen is definitely getting a decent tailwind for now, though I would still argue that there is a good case to be buying yen pairs (for the long-term) on dips if the retracement extends further - CAD, NZD, GBP in particular.
That is solely based on rate differentials and policy divergence in the months/years ahead.
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