Bond Markets Stronger After ADP Data; Flying Holding Pattern
Treasuries had a calm, positive overnight session, moving gently lower in yield throughout Asian market hours. Gains picked up initially into European hours, but snapped back modestly and quickly after news came out that Berlusconi's party would potentially back Letta in a confidence vote.
It's not really important to know who those people are, simply that when Berlusconi is playing nice with the other Italian politicians, it's net-negative for German Bunds and that US Treasuries get a bit of spillover selling in those instances. It wasn't much in this case, but enough to level-off the overnight rally.
The morning's big news (more so due to anticipation) was the ADP Employment data coming in at 166k vs 180k expectations. The previous report was revised lower to 159k from 176k. This was a frustratingly weak result in that it wasn't wholly conclusive evidence that labor market metrics are on the turn (something markets are considering after the past two NFP readings).
Had it been much weaker, bond markets may well have found reason to rally more profoundly, but for now have simply rallied nicely and leveled-off. Fannie 3.5s bounced right in line with Monday's highs and 10yr yields have yet to make it through Monday's lows.