If there's a kind of storm that's not quite perfect, but still pretty darn good, this morning's confluence of events is getting there. Here are the ingredients
1. European debt rally (a big one). German Bunds moved into new all-time lows overnight and went on another push lower as the US session began. This coincided with #2.
2. Month-End buying. With certain investors needing to buy a certain amount of Treasuries/MBS before the end of the month and with prices moving quickly higher this morning, we're seeing what can only be some month-end buying. For more on that, read this: 'Month-End Buying,' And Its Effect on Bond Markets.
3. Short-Covering. Short covering happens when traders who were betting on rates moving higher, are forced to buy bonds as yields move lower in order to prevent further losses. So with #1 and #2 making for an extra push toward lower yields, short-covering merely acts as an accelerant.
If one of these three things is doing the most to motivate the US bond market rally, it's the European debt rally. By that same rationale, when it changes course, that's when our rally this morning stands the greatest chance of bouncing or leveling off. Ultimately, we're not breaking into any new ground today with respect to the recently low/narrow rate range.