10-year Treasury yields took a big tumble in trading yesterday as the Treasury quarterly refunding announcement was not as bad as feared. The flood of supply was lower than anticipated and that sparked a rally in bonds, helped by a less hawkish take by Powell. The latter is just a supplementary factor in my view as it seems like there is a squeeze running now after the heavy selling in the bond market. Have we hit a peak at the 5% mark?

US Treasury 10-year yields (%) daily chart

Yields are down another 1.2 bps today to 4.722% currently, following the near 20 bps tumble in trading yesterday. That sparked a strong risk rally and it is also leading to a much softer US dollar. In particular, USD/JPY was angling for a breakout only to see that momentum quelled now in a push down to 150.35 again - still above the pivotal 150.00 level though.

It's now a question of if this is the start of a reversal in the bond market or just a temporary relief after a rather relentless rout that began all the way back in July this year. We've already seen Bill Ackman made his call on bonds here and now the so-called "bond king" Jeffrey Gundlach has said that bonds are set for a big rally here.

I think the telling sign will be in US economic data. The moment that there are any signs of weakness cropping up, expect that to start ringing alarm bells as bond sellers head to the exits en masse. And it could come as soon as tomorrow's non-farm payrolls.