Bond Market Reacts to Rate Decisions and Strong Data🤔
On the rates side, while Thursday provided nearly the same backdrop as Wednesday's sell-off (ECB hawkish-hold vs BoC hawkisk hold, strong GDP print vs German IFO and new home sales beats), rate markets decided to react in exactly the opposite direction because... markets exist to create the maximum pain for traders, most of the time. Off-side positioning and a short-covering squeeze likely contributed to the bond rally, with yields falling around 10bp in the belly and reversing the majority of yesterday's moves.
The ECB meeting left a hawkish impression for the most part, with President Lagarde acknowledging that long term interest rates have risen "markedly", but added no further push back that the governing council was unhappy with the move. On the US side, a decently received 7yr auction (no tail) saw a strong 2.7x bid-to-cover, the strongest since March 2020, with only 11% left to dealers and well below average and helping bond yields close back at the day's lows.
