The “everything rally” is back in the US.

As discussed at length in the latest weekly, the confluence of “just right” macro data (where that means soft-ish), a balanced message from Jerome Powell and, perhaps most importantly, a tacit acknowledgment from Janet Yellen’s Treasury that oversupply concerns were likely behind the term premium repricing since August, kicked off a raucous cross-asset rally the likes of which investors haven’t enjoyed in at least a year.

It was all about the abatement of the bond selloff. And in that regard, the momentum likely fed on itself from mid-week through Friday’s dovish jobs report. “I think it’s worth reiterating: PNL protection from traders looking to manage their year performance and monetize rare winning trades in the macro space certainly contributed to the substantial ‘reversal’ / ‘everything’ move, with shorts and steepeners getting unwound and/or stopped-out,” Nomura’s Charlie McElligott said.

Some readers may recall that a very large share of CTA performance over the past two years was attributable to chasing the bearish momentum in bonds and STIRs.

The figure above gives you a sense both of the performance attribution across assets (on the left) and within rates (on the right).

“In light of how much alpha the legacy shorts have contributed to trend strats over the past few years” the notionals on any additional short covering into a rally extension could be sizable, Charlie remarked.

TD entered a strategic 10-year long this week citing expectations for softer data and the smaller-than-expected increases to 10- and 30-year auctions in the refunding announcement. Yellen, the bank’s Gennadiy Goldberg said, is “avoiding the worst-hit sectors” out of respect for the term premium repricing. TD’s targeting 4% for the trade, and reiterated it after the jobs report. “Weaker payrolls should continue to push rates lower as momentum players join in,” Goldberg wrote.

Note that despite the sharp rally at the front-end (as the market faded additional rate hikes), the long-end rallied more. The 2s10s bull flattened 11bps on the week (i.e., the inversion deepened in a reversal of the recent bear steepener).

McElligott flagged “extremely steep” call skews in rates and options on the largest Treasury ETF as examples of “the tone-shift into tactically bullish duration sentiment and positioning.”

The risk, of course, is that this is another false dawn for bond bulls — that the data re-accelerates, supply jitters manifest in more auction tails, the Fed gets nervous about the market pulling forward rate cuts (note market pricing now indicates ~25% odds of a cut as soon as March) or all three.

“The Fed will soon risk the hilarity of ‘too much FCI easing,’ which then risks upside surprises to the data if it rekindles ‘animal spirits’,” McElligott went on. “So I do think if this rally continues to squeeze, there’s a rationale for macro / discretionary traders wanting to reset tactical downside and steepeners if this bull flattening were to further overshoot into a total capitulation.”