After four consecutive weeks of losses for bonds, the bond market has been up each day this week. Based on Thursday’s opening, bonds will close higher today as well. Sounds great for bond bulls, but the move has been grudging to say the least. The yield on the 10-year note has moved lower by only 1 basis point each day. The 10-year closed at 2.37% Friday. But bullish traders are encouraged that the market did manage to rebound from the 2.40% early Friday, and each tiny move further away will encourage more speculative buying.

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The Treasury will auction 30-year bonds today. Demand for yesterday’s 10-year note was not great, but dealers expect demand today will be ample. Traders like to play games with these refunding bonds. It’s a chance for them to buy large positions and then fabricate a rally to book quick profits. That ploy did not work in September, but the track record of post-auction bond rallies is very good. ContentMiddleAd

Tomorrow, when the CPI is released, could be a key day for bonds; it could determine if the auction play will work. Economists are expecting a strong headline gain of 0.6%, but that will be mostly related to the price of gasoline. The core rate is expected to be 0.2%. If it is less than expected, expect a stronger move in bonds. If higher than expected, the bond market could give back all of the gains this week.

This could be a big deal tomorrow. Of course, it could also be no deal at all if the number is as expected.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.