In my view, this chart continues to be the big one to watch in trading this week. Treasuries were sold off heavily to start the year and that saw long-end yields climb but the move has stalled today.
This comes as yields hit key resistance from the topside of the wedge pattern as noted above. 10-year yields are down 2 bps to 1.645% currently.
In turn, that has seen USD/JPY upside this week also lose some ground as the pair slips to just below 116.00.
If yields are to stay more rangebound, that might limit some of the potential action suggested by the moves earlier this week. But if there is a breakout, that will certainly keep things very interesting to start the new year.
As mentioned yesterday, if the latter scenario were to take place:
“In turn, that will provide a stronger impetus for USD/JPY to stick with the breakout highlighted earlier here. As much as higher yields may pose a problem for stocks, I don’t see much of that unless we start to go beyond the March 2021 highs above 1.75%. Even so, one can argue that only a move closer towards 2% may be significant in pulling down equities sentiment.
Otherwise, if the move does not extend too far, too fast, then stocks may breathe a little easier.
As for the bond market outlook and why yields are looking to trend higher, I talked about that more in-depth here: What next for the bond market in 2022? “
All of that still applies as we look towards the FOMC meeting minutes release later today and then the US non-farm payrolls report on Friday.