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The economic data calendar is relatively light in the world's largest economy this week, which comes as a welcome break after the previous week's packed schedule.

However, the focus remains on Treasuries. Two Mondays ago, 10-year U.S. yields surpassed the 5% mark for the first time since the Lehman Brothers crisis. As of now, they have retreated and are trading below 4.60%.

This dramatic reversal can be attributed to a series of events that favored bond markets. It all started with the November refunding announcement and culminated with a payroll report that was softer than expected, driving a bond rally.

By the middle of October, it seemed almost inevitable that Treasury bonds were headed for an unprecedented third consecutive annual loss. However, the situation has evolved, and now it's uncertain whether bonds might manage to break even in 2023.

The largest Treasury ETF is wrapping up its second-best week in 2023. It's worth noting that we are approaching the first anniversary of a remarkable rally that coincided with the October 2022 CPI report.

The prevailing market sentiment is that the Fed has completed its tightening cycle, and there's potential for last week's bond market rally to gain a squeeze momentum. Nevertheless, it's essential to keep in mind that there's a kiloton weight of Treasury bonds to be auctioned, which makes this week's auctions the central focal point of attention.

While the U.S. bond market shows definitive signs of moving out of selling the news and buying the facts, for this “everything rally” to extend, it might depend on the initial market's reaction or a bond bullish bid-to-cover ratio to the actual auction results.

However, the sudden and significant drop in 10-year yields last week implies that buyers may struggle to price fair value now, as bonds are rich compared to recent levels. Hence, stock markets could move into wait-and-see mode before taking the next leap of faith if the auction shows the bond buyers are truly returning.

The worthy of attention retreat in long-term interest rates was seen as mega relief for the beleaguered equity markets, mainly benefiting dividend-heavy and long-duration stocks. After enduring a 10% correction in the past three months, the S&P 500 saw a robust 6% rebound last week, and we might only be scratching the surface; however, it does appear that investors are coming up for air ahead of this week’s auction results.

Despite some odd recession calls, the onslaught of economic data wasn't especially shocking and does not suggest the Fed would be in a rush to cut rates. However, the trend consistently leaned towards the softer side of expectations. The jobs report for October, released on Friday, may have arguably been the perfect elixir for investors who needed to shake off a two-month equity market hangover. While I will avoid using the cliché of calling it a "Goldilocks" as the overuse is becoming cringe-worthy, it did strike a balance.

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