US 30-year bond yields rebounded after briefly reaching 5% for the fourth time this year. Previous attempts to purchase bonds at these levels were quickly reversed, with yields today falling to 4.86%.

The University of Michigan report indicated ongoing inflation concerns, causing yields to bounce back to 4.90%. If maintained, this would represent the second-highest weekly close since October 2023, resembling pre-financial crisis market conditions.

Bond Market Volatility

Opportunities to purchase bonds at these rates appear to be less frequent. In fiscal developments, some Republicans showed resistance to the anticipated deficit increase in Trump’s budget, although it is believed they will eventually support it.

What we’re seeing is a market that has struggled to find stable footing around that 5% level on 30-year US Treasuries. Every previous occasion this year when the yield touched that number, there was a rush into bonds, but these attempts have been short-lived. Once more, yields moved down quite sharply afterwards, reaching a floor of 4.86% before climbing again. This back-and-forth suggests a tug-of-war between long-term inflation expectations and the instinct to lock in yield while it still appears attractive.

The University of Michigan’s latest consumer sentiment data did little to ease this uncertainty. Inflation expectations, as relayed in the report, appear to be sticky, and that continues to weigh on decisions. One clear result of the release was an abrupt rise in yields to around 4.90%, which—if held through to weekly close—places it almost near levels last reached before the banking chaos of 2008. There is little ambiguity left: these higher yields are grounded more in forward-looking price pressures than in simple technical corrections.

Now, drawing some ideas from Washington, there’s noise around Republican resistance to rising deficits, particularly in the context of the former President’s latest budget proposal. However, judging by the broader tone from Capitol Hill, the likelihood of full opposition materialising is low. Delays, yes. Posturing, certainly. But action is what eventually counts. And markets tend to view these discussions pragmatically, adjusting to actual outcomes rather than early objections.

Market Strategy and Positioning

In this backdrop, short-dated volatility continues to offer fleeting chances. Large directional bets have been penalised quickly. Short-term reversals have been more prevalent than follow-through trends. This tells us that conviction trades should remain light, and tightly managed. There’s no long runway for momentum strategies right now.

For those of us involved in structured positioning, the most appropriate approach remains focused on short-term relative value and curve steepening or flattening trades rather than bold directionals. Long-end duration can still offer mild entry levels when yields touch the higher end of the recent range, but these windows have been narrow and subject to sharp repricing. Patience is required, but the market currently isn’t allowing many second chances.

It becomes essential to stay nimble. The focus, as ever, lies in reading the incoming data with precision, anticipating short bursts of reaction rather than bedding into trend assumptions. With fiscal signals still mixed and macro data pointing in all directions, the environment suits traders who can take fast profit or quickly cut risk when wrong.

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