One of the interesting things about the stock rally last week is that bonds also rallied.  Over longer periods, stocks and bonds are lowly correlated, which means that they are generally independent from each other.

Over very short periods, especially when there is a lot of activity, stocks and bonds are usually negatively correlated.  If you had told me that stocks would rebound sharply last week and gain 3.27 percent, which reversed most of the losses from the Brexit, I would have assumed that bonds would have reversed too and sold off.

But they didn’t – instead yields fell and the benchmark bond and the Barclays US Aggregate gained 0.76 percent, which is remarkably high for the entire universe of taxable, investment grade bonds.

At first I was simply happy that both asset classes rallied, but it took me a few days to realize why bonds were continuing their gains instead of selling off like I would have expected.

The unfortunate answer is that markets obviously expect new central bank intervention.  Overseas, the Bank of Japan and European Central Bank have kept their foot on the quantitative easing accelerator.

Not only did we stop our program, but the Federal Reserve managed to squeak in an actual hike in interest rates.  That’s a good thing in my opinion because we want to get back to normal.

I read a number of articles over the long weekend that the bounce in Treasury bonds was technical in nature – short-covering, hedging, etc., which may be the case.

Ultimately, it’s impossible to tell in the short run and my guess is that the Fed doesn’t know what their next move is at this point.  They like to say that they are ‘data dependent,’ and I definitely think that they try, but it would seem to me that hiking anytime soon will be difficult no matter what the data says.