After yesterday's inflation data, the 10-year yield broke this trendline.
Let's take a look at how yields rose from 3.81% to 4.74% over just the past three months.
Remember, in mid-January the market was pricing in six quarter-point rate cuts for the year, with a chance of a seventh.
The Fed started pushing back against that sentiment by late January, and Jerome Powell curbed the enthusiasm about the rate outlook in the January Fed meeting. That started this pendulum swing in the rate outlook, from one extreme to another.
This trend higher in market rates (in the above chart) was then strengthened by rumors that the Bank of Japan was preparing to exit emergency level policies – a signal that inflation was even sustaining in Japan.
The trendline held again on a hot U.S. inflation report on Good Friday.
And by mid-April the pendulum on the rate outlook had swung from expectations of as many as seven quarter-point rate cuts this year, to maybe none/zero.
With that, fittingly, the tide turned, on this rising trend in yields, following the Jerome Powell's clearly dovish message following the Fed's May meeting.
And then this trendline broke, with yesterday's CPI report, where it showed a decline in year-over-year inflation, and weak inflation if we exclude the effects of auto insurance and owner's equivalent rent.
So now we have the pendulum on rate expectations moving back toward the middle in the U.S. We have expectations for rate cuts coming from the euro zone and UK next month. And the Bank of Japan's plan to tighten policy has already hit a road bump, after the economy contracted in the first quarter.