The bond market looks to have made up its mind on the week

I pinned this as being a key line in the sand on Tuesday and bond traders look to be making up their minds already now on the week. As tariff fears subside, it’s clear what the main worry is for the bond market as evident by the run up in yields since October and in the run up to Trump’s inauguration.

Now that tariff fears are subsiding, yields took a turn lower helped by a softer US ISM services PMI here. So, what’s next?

From a technical standpoint, the drop in yields suggest that there is more momentum to keep running to the downside in the short-term. But from a fundamental standpoint, there’s still one key hurdle left in trading this week. And that is the US jobs report tomorrow.

As market fears surrounding Trump’s policies recede momentarily, bond buyers look to be gaining back some confidence. As such, the focus in the meantime turns back towards labour market conditions and the inflation outlook.

We’ll deal with the former on Friday before dealing with the latter on Wednesday next week. Those will be the two key risk events to watch out for now in the next week or so. That unless Trump causes another stir and it could be the case as we are awaiting his talk with China president Xi still.

But just be looking at the chart above, a flip of the neckline could be hinting at a further decline in yields towards 4.20%. Even if things won’t play out that straightforwardly, the momentum has shifted to favour bond buyers after yesterday’s moves.

That’s a positive takeaway for the likes of stocks and gold unless the non-farm payrolls data has something to say about it.

This article was written by Justin Low at www.forexlive.com.