Bond Markets Slightly Weaker After Neutral Overnight Session
Compared to the gyrations seen during yesterday's domestic session, overnight trading was calm and sideways. One of the tertiary market movers during that session was the European bond market. To reiterate a fairly common theme, US bond markets are often forced to temper their predisposition to move higher because of incessantly lower yields in core European debt.
This isn't the sort of thing that flat-out dictates where Treasuries must go. Indeed the gap between European benchmarks and Treasuries recently stretched to its widest levels since the late 90's. But neither is it something Treasuries can completely ignore. In short, it's a drag on yields.
After German Bund (that's their version of the 10yr Treasury) yields pulled up from another run toward all-time lows yesterday, 10yr yields never broke back below 2.53. The same resistance 'floor' came into play 3 times in the overnight session. The most recent bounce coincided with the onset of domestic trading. Once again, the week's slightly bearish (read: 'higher yields') predisposition came to the surface and the bounce in Europe provided the cue for US Treasuries to head more decisively higher.
That sounds a bit more serious than it might be considering two factors. First, 10's are still under the 2.57% pivot point, even if only just (2.563). Second, the level of outright day-over-day movement is pretty tame. 10's are up only 1.3 bps and Fannie 3.5 MBS are down an eighth of a point. Could be worse.
As far as things that could make it better, there's some moderately important economic data coming up at 9:15am and then Yellen is back on the Hill at 10am to talk to the deep thinking public servants in the House Financial Services Committee.