On several occasions in the past, we've seen pronounced reactions to big beats/misses in New Home Sales data.  Today's miss is every bit as big as past 'big misses' (the ones that resulted in big moves), yet we're not seeing much of a response.  Fannie 3.5s have only recovered 2 ticks and 10yr yields are only down to 2.5052 from 2.518. 

Does this suggest a stronger inherent bias back toward higher yields?  Or do the big miss and big revision to last month's New Home Sales data suggest that it's too volatile at the moment to pay much mind?  Maybe some of both?  Whatever the case, the modest bounce is enough to alleviate the reprice risk that had been building ahead of the data.  Here's a run-down of the report:

• June New Home sales 406k vs 479k forecast (annual rate)
• In percentage terms -8.1 percent is biggest drop since July 2013.
• May revised to 442k from 504k
• Northeast down 20 percent, Midwest -8.2, South -9.5, West -1.9
• Supply at 5.8 months, highest since October 2011

Jobless Claims were significantly stronger than expected.

• Claims 284k vs 308k forecast, 303k previously
• Continued Claims 2.5mln vs 2.508mln previously, lowest since June 2007

Bond markets were already quite a bit weaker overnight, mostly following German Bunds' bounce off recent lows (another one).  10yr yields bounced in a similar fashion between yesterday and today.

For their part, MBS aren't under quite as much pressure as Treasuries with Fannie 3.5s down only 7 ticks in price compared to 10yr Treasuries' 11 ticks.  The next significant data is New Home Sales at 10am.

The overnight session was uneventful for Treasuries.  Asian hours saw US 10's hold steady at very slightly weaker levels.  European trading carried yields just a bit higher at first, but we've been in a moderate rally trend since 4am.

There are very few salient sources of motivation for the move apart from the fact that bond markets seem inclined to be hovering around long term range boundaries ahead of a week that's big enough to potentially break them. 

If anything, Bank of England (BOE) Minutes and subsequent comments from Carney helped global bond markets in general.  The BOE had talking about raising rates, but the Minutes painted them as less eager to do so.  Carney's comments concerned a weaker labor market--the same sort of cautionary tone with which Yellen speaks of the US labor market. 

10yr yields have worked their way down to 2.453 and Fannie 3.5s are up 2 ticks at 102-21.  In a departure from recent connectivity with bonds, stocks are also improved, but only after spending the overnight session trading weaker.  It's notable (and sort of a dead giveaway) that stocks and bonds both broke toward more positive levels after a huge central bank remained friendlier than expected with QE.  (i.e. we see this consistently when the Fed, ECB, BOJ, or BOE embarks on or maintains their easy money policies, which benefit both stocks and bonds).

As we discussed late last week, the ability for bond markets to hold gains related to geopolitical risk would be predicated on those risks intensifying.  Arguably, that's the case in both Ukraine and Gaza over the weekend as hostilities and casualties increased.

That said, there weren't any surprises to catch markets off guard in the same way that some of last week's did.  As such, the bond market gains are modest.

Japanese markets were closed for a national holiday, making for a slow start to the overnight session.  The European session saw sideways movement in core government debt.  German Bunds (10yr) traded modestly to either side of all time low yields. 

Treasuries traded on either side of Friday's close, but have edged into slightly more positive territory as the domestic session gets underway.  MBS opened in line with Friday's close, but have added 2 ticks so far, bringing Fannie 3.5s to 105-21.

There are no significant events on the calendar, leaving the focus geopolitics and perhaps domestic stock trading.

After yesterday's decisive rally, Asia's first conclusion was that the rally had gone far enough.  Asian accounts sold Treasuries somewhat aggressively in the first part of the overnight session, taking 10yr yields from 2.44+ to  2.49+. 

The bad times kept rolling for a few hours of the European session, but never bad enough to lift German Bund yields more than a few bps off the all-time closing lows seen yesterday.  Selling reversed course around 5am, and Bunds pushed into new lows yet again. 

Treasuries were happy enough to come along for the ride with the Bund rally.  10's made it back to 2.46 and have been going mostly sideways since then.  MBS are 3 ticks weaker at 102-12 (Fannie 3.5s) and going even more sideways than Treasuries. 

Why are MBS red and Treasuries green right now?  Treasuries are technically in the green because the official close is at 3pm.  MBS's close is at 5pm.  So the day-over-day changes are based on those times respectively.  Because there was more rallying from 3 to 5pm, MBS are measured against those stronger levels while Treasuries only have to beat the 3pm levels to be green.