Bond Markets Turn Positive After Weaker Overnight Session
Most Asian markets remained closed but European markets were back in action today. Bonds were mostly weaker overnight after strong manufacturing data in Europe. Treasuries didn't fully participate in the move, but were slightly higher in yield during the overnight session.
8:20am (the CME 'pit' open) saw positive tradeflows pick up in bonds and increased selling in stocks. Even in this digital age, the pit hours at the CME are still when most of the trading is happening as some large, consistent market participants use the services of advisors that work on pit hours (that's why 3pm is still the most commonly accepted bond market 'close.' 8:20am is just the open for that close, despite the fact that electronic futures trading has been going on all night).
Sometimes we see a shift in tone or volume at 8:20am and this was the case today. With respect to the trades that were waiting for the 820am open, it was obvious there was a positive bias. After being as high as 2.623 overnight, 10yr yields began moving lower, hitting 2.605 even before the inconsequential Trade Deficit data. They're currently at 2.60.
Fannie 4.0 MBS are up 2 ticks after being down 3 ticks at the open. Fannie 3.5s are also up 2 ticks at 101-31. There is no significant economic data today, but the 3yr Auction at 1pm could cause a small reaction. That said, 'tradeflows' should dominate the day. With that in mind, nothing is really happening while 10yr yields remain above 2.57, and even more so above 2.60. In other words, trading levels themselves will be the best guidance and commentary on market sentiment. The longer we stay above those levels, the greater the motivation to remain inside the existing range.