The world’s biggest bond market rebounded, with traders gearing up for a record US$42 billion sale of 10-year Treasuries after a solid start to this week’s ramped-up issuance sizes.

Following a selloff that drove two-year yields to their highest since before the Fed’s December “pivot”, bonds climbed. A $54 billion sale of three-year notes drew solid demand, bolstering sentiment and making traders shrug off a slew of cautious remarks from Federal Reserve speakers. The S&P 500 edged up. Megacaps were mixed, with Tesla Inc. up and Nvidia Corp. down. US-listed Chinese stocks rallied on bets the nation will be more forceful to prop up markets. New York Community Bancorp tumbled 22 per cent.

As expected, a drumbeat of central bank officials echoed Jerome Powell’s signals that the central bank will be in no rush to ease policy. Fed Bank of Cleveland President Loretta Mester said policymakers will probably gain confidence to cut interest rates “later this year” if the economy evolves as expected. Her Minneapolis counterpart Neel Kashkari celebrated the substantial improvement made on inflation, but indicated more progress is needed.

“The Fed expects to cut this year, but not right away,” said Chris Low at FHN Financial.

“While we continue to suspect market expectations for five rate cuts this year remains too optimistic, a factor in favour for bond bulls is that inflation-adjusted, or real rates, need to come down as price indexes improve,” said John Lynch at Comerica Wealth Management. “As a result, we suspect three cuts will prove sufficient to balance the risks to growth and inflation in 2024.”

As bonds managed to rebound on Tuesday, stocks barely budged.

Down days in the S&P 500 aren’t necessarily extinct, but they’ve become shallow relative to positive sessions.

Since early January, the gauge has seen an average gain of 0.66 per cent in positive sessions, compared with a 0.45 per cent drop in negative ones. That’s pushed the ratio of the two to about 1.5 — the highest skew in favor of the bulls this far into a year since 1995, according to data compiled by Bloomberg.

“A period of consolidation across the major averages or a potential period of near-term selling pressure is probably overdue at this point,” said Anthony Saglimbene at Ameriprise. “Such a development could be healthy in the long term and help recalibrate expectations.”

Citigroup Inc. strategists noted that investor positioning in US technology stocks is so bullish that any selloff could trigger a wider rout.

Wagers on declines in tech-heavy Nasdaq 100 futures have been completely erased, leaving investors overwhelmingly expecting further gains. “The large consensus positioning is a risk that could amplify a turn in the market,” strategists led by Chris Montagu wrote.

Bullish trends in S&P 500 futures stalled last week, although positioning remains net-long, they said.

Volatile markets are predicted to be the greatest daily challenge for a second year in a row, according to a JPMorgan Chase & Co. electronic trading survey. Access to liquidity is the biggest concern about market structure, ahead of regulatory change and data costs.

While volatility across asset classes remains relatively contained compared to recent gyrations, the worry is that it could spike if the global economy faces another shock. Markets are pricing in over a percentage point of rate cuts from the Fed and European Central Bank, though the survey still sees inflation as having the biggest impact on markets in 2024. In second place is the US election — with a flurry of other votes due around the world as well, plus mounting geopolitical risk.

“While conditions are good, volatility is very possible,” said Brad McMillan at Commonwealth Financial Network. “We saw some turbulence in January, and we aren’t out of the woods with inflation yet. So, while the trends remain positive, risks could increase over the next couple of months. This is something to watch out for but not worry about too much, given the strong economic fundamentals.”

Corporate Highlights:

• A dramatic accident on an Alaska Airlines flight last month was apparently triggered by a door plug that hadn’t been properly attached before the plane was delivered by Boeing Co., US investigators said Tuesday.
• UBS Group AG will buy back up to $1 billion in shares this year, as the bank seeks to keep investors focused on the upside of its complex integration of Credit Suisse.
• Palantir Technologies Inc. said that demand for its artificial intelligence products was driving sales, and gave a higher-than-expected profit outlook for 2024.
• Blackwells Capital, an activist investor seeking three board seats at Walt Disney Co., called on the entertainment giant to consider spinning off its famed theme-park properties and splitting into three companies.
• Eli Lilly & Co. forecast 2024 sales ahead of Wall Street estimates as the company rolls out Zepbound, its weight-loss shot that’s widely expected to become the best-selling drug of all time.
• Spotify Technology SA, the music-streaming giant, reported subscriber growth that surpassed Wall Street’s expectations amid international growth.

Key events this week:

• Germany industrial production, Wednesday
• Walt Disney earnings, Wednesday
• Fed’s Adriana Kugler and Tom Barkin speak, Wednesday
• China PPI, CPI, Thursday
• U.S. wholesale inventories, initial jobless claims, Thursday
• Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing on the Financial Stability Oversight Council annual report, Thursday
• Pharma CEOs speak at a Senate panel on prescription drug prices, Thursday
• ECB Chief Economist Philip Lane speaks, Thursday
• ECB publishes economic bulletin, Thursday
• U.S. CPI revisions, Friday
• Germany CPI, Friday
• President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.2 per cent
• The Dow Jones Industrial Average rose 0.4 per cent
• The MSCI World index rose 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.1 per cent to $1.0756
• The British pound rose 0.5 per cent to $1.2599
• The Japanese yen rose 0.6 per cent to 147.86 per dollar

Cryptocurrencies

• Bitcoin rose 1.8 per cent to $43,095.73
• Ether rose 4.1 per cent to $2,379.9

Bonds

• The yield on 10-year Treasuries declined seven basis points to 4.09 per cent
• Germany’s 10-year yield declined two basis points to 2.29 per cent
• Britain’s 10-year yield declined six basis points to 3.95 per cent

Commodities

• West Texas Intermediate crude rose 1 per cent to $73.49 a barrel
• Spot gold rose 0.5 per cent to $2,035.80 an ounce

This story was produced with the assistance of Bloomberg Automation.