Another flip in Treasury yields after one other Fed pivot?

US equities are making new lows but bonds have turned around.

Ten-year Treasury yields touched the highest since May earlier today at 4.50% but have since turned around and are now down 1.6 bps on the day to 4.40%.

That’s a solid rejection but the next hurdle is yesterday’s low. A drop below that would end a series of higher lows and if it comes with more equity selling it could be part of a broader flight to safety.

USD/JPY will also key off of yields and could further retrace if this move continues.

Interestingly, the big jump in yields started after the Fed cut 50 bps and now the turn lower is coinciding with Powell saying the FOMC is in no hurry to cut rates. Other officials have taken a similar less-dovish tone.

The thinking in the bonds market is about that reaction function. When the Fed cut 50 bps it cut tail risks around a recession and added to inflation risks, particularly after waves of strong data following the cut.

In contrast, the Fed pausing now would work to squash inflation and curb growth.

So there is a bit of a dance going on here that’s worth keeping an eye on.