The bond market's rally picked up steam when Fed Chair Janet Yellen's testimony was taken to mean the central bank won't be hiking rates all that much.
The gains started Tuesday with the surprise release of Donald Trump Jr.'s emails on his meeting with a Russian lawyer that suggested the Russian government supported his father's campaign.
The testimony released for Yellen's appearance before a House committee Wednesday morning highlighted that the Federal Reserve believes it is not that far from the neutral rate. While some strategists said the comments were not particularly new, Fed Governor Lael Brainard discussed the issue Tuesday and the market took her commentary as highly dovish.
The neutral rate is the level where the Fed's benchmark rate does not either boost or hold back the economy.
"That's what the market thinks, but I think that's flawed thinking. Everything she's said before is boilerplate on the neutral rates," said George Goncalves, head of fixed income strategy at Nomura. "I feel like there's some extrapolation from Brainard's comment yesterday. People were thinking she's confirming what Brainard said. That's wrong, in my thinking. ... The Fed still thinks they're not at neutral and they'll be heading toward it. On top of that, they think it will rise further."
Economists at Goldman Sachs, however, did see the comment as slightly dovish since Yellen confirmed she expects the neutral rate to rise but stay below historic levels.
Bond prices jumped and yields moved lower when Yellen's testimony was released, as traders responded to the headline, as well as another from Yellen that suggested more uncertainty about the course of inflation than her previous remarks.
"There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization," she said in the testimony.
The Fed has been telling the market that the drop in inflation is transitory.
"It's a small step away from inflation is transitory. That's what the market is responding to," said John Briggs of NatWest Markets.