Bond Market Carves Path Back to Familiar Territory

It has been an eventful September in the U.S. bond market, with volatility finally making an appearance. Just don’t get used to it. Familiar trends are likely to reassert themselves sooner rather than later, which is to say that despite the Federal Reserve signaling its intent to raise interest rates a third time this year in December, its efforts to boost longer-term bond yields will be like pushing on a string.

The month started out with a panicky flight to quality that peaked on Sept. 8 as rising tensions with North Korea and Hurricanes Harvey and Irma exposed a very large bet against Treasuries by speculators. The bears quickly reversed their short positions, helping to trigger a remarkable rally that pushed 10-year yields to their lows of the year at around 2.015 percent, despite solid U.S. economic data and a vibrant environment for so-called risk assets such as stocks and corporate bonds.