Intra-day Action in the 10-Year

Yesterday's action in the stock and bond markets was unusual, to say the least. While the early action was dominated by the disappointing employment report, which seemed to indicate less inflationary pressure and less agressive future rate hikes by the Fed, this was "trumped" by the release of the Prices Paid component of the Institute of Supply Management report at 10:00.

In the chart below, which is a 5-minute interval chart, note the large jump down in the 10-year rate as the employment report was announced at 8:30. The rate fell below the prior gap range from last week. Then, at 10:00, the Prices Paid results were announced. This survey's results were consistent with higher future inflation, sending the 10-year rate sharply higher to 4.54% (see the chart).

Why did the rate then fall for the remainder of the day (ending at 4.45%)? Oil prices set a record. Apparently, the market concensus was that the effects of higher oil prices in terms of slowing the economy would be more than sufficient to control for moderate the inflationary pressures indicated in the Prices Paid report.

NOTE THE DIFFERENT HEIGHTS (HIGH vs LOW) OF THE 5-MINUTE PRICE BARS. THESE SHOW HOW TRADING RANGES VARIED THROUGHOUT THE TRADING DAY.
- LARGE BARS OR BARS RISING IS SIZE INDICATE DEFINITE MARKET SENTIMENT WITH ONE GROUP (BULLS OR BEARS) IN CONTROL
- WHEN THE BARS GET SMALLER, THE DECISIVENESS OF THE MARKET IS BECOMING LESS CLEAR, RAISING THE POSSIBILITY OF A CHANGE IN DIRECTION (INCLUDING UP/DOWN TO SIDEWAYS)