US 10-year yields are down 11 basis points today to 2.96% in a sharp turnaround from the 3.20% high early yesterday.
All else equal, that's a positive sign for global risk assets and a strong hint of a bounce.
The important question is why:
- If it's a flight to safety then it will unwind once stocks stabilize and turn upward again.
- If deleveraging is winding down, then there's a good chance of some sideways consolidation -- which would be a more-sustainable backdrop
- If it's a reflection of slowing global growth/inflation then it's mixed
- Simply a reflexive move to lower oil and natural gas prices
In all likelihood it's a combination of all four.
There's one more possibility though: That we've priced in the full Fed hiking path. The market has been pushing and pushing on the upside (in terms of yield) on worries about inflation but we might have reached the point where enough is priced in. Used auto prices are falling rapidly, for instance.
Tomorrow is the CPI report and if its' a touch light, we will see the 'peak inflation' trade once again.
