Despite the recent sell-off, the promise of highly stimulatory monetary policy from the US Federal Reserve is the dominant force driving bond market yields today. The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected. Normally, bond market yields rise on stronger economic data, and the reverse is true for weaker than expected data. However, these are unusual times, and despite the US economic surprise index sitting close to an all-time high (in-part explained by the difficult job economists have of forecasting economic variables at this point in time), the 10 year US Treasury yield is around 1.5% lower than it was six months ago. 

Given the focus of bond market investors on policy rather than the real economy, the danger for bond prices now lies in the potential tapering of the fiscal and monetary support packages that have been announced during the Great Lockdown. With most governments suggesting that fiscal assistance may be begun to wound back later this year, we may yet see another taper tantrum from the bond market, and the traditional drivers of bond market yields reassert themselves.