Ironically, part of the discussion in this morning's 'day ahead' concerned the respective floors underneath yields in both German and US debt. Ironic because during the overnight session, German yields once again broke through the red line on this chart:
And no sooner did that happen than 10yr yields moved below 2.47 again. There's still some way to go before 10yr yields break the lows of the year, but 2.47 is a significant pivot point. Being below there is akin to a runner taking a lead-off before stealing a base.
As for the European bond market strength, chalk that up to exceptionally weak economic data out of Germany (Industrial Orders fell at fastest pace since Sept 2011) and Italy's 3rd slide into recession since 2008. Germany and Italy are the largest and 3rd largest economies in the EU respectively. Weak UK data (industrial output) was icing on the cake for the European bond rally.
10yr German Bunds fell to new all-time lows overnight, currently at 1.10. Treasuries followed, and were down to 2.44 by 6:30am. MBS opened a quarter point higher (+0-08 at 102-16). While European debt has continued to improve modestly, Treasuries and MBS have dialed it back a bit.
This reiterates the face that there is SIGNIFICANT resistance for Treasuries in this 2.44-2.47 neighborhood, but they will only let themselves get so far away from German yields before being forced to break lower. With Europe being such a big driver this morning, keep an eye out for volatility heading into the EU bond market close at 1pm.