While we have yet to sustain more than an eighth of a point in gains, a few lenders have indeed come through with the "stability reprices" mentioned earlier.  Fannie 4.0s are up 4 ticks on the day while 10yr yields continue hanging out mostly between .5-1bp lower (currently 2.7843). 

In the absence of substantive market movers, Treasuries, stocks, European markets have mostly been moving as a herd.  Volatility decreased after European closed and it doesn't look like it wants to come back today.  Volume is low.  Nothing is going on.  Anticlimactic Monday (but better than strong NFP-inspired follow-through selling).

Weak economic data out of China provided a mild boost for Treasuries early in the overnight session while rallying equities in Europe sent yields back in the other direction.  By 8am 10yr yields were less than half a bp higher than Friday's latest levels and MBS were content to walk in the door perfectly unchanged.

Both have improved just slightly since then with the turning point being the 8:20am CME open (Treasury futures pit trading). 

Bonds face some challenging headwinds from a potential shift in momentum following last week's NFP.  Near term inspiration to move higher or lower is going to be hard to find unless it jumps out at us (i.e. not much going on until Thursday).  As such, the absence of a continued sell-off gives the first small clue in determining bond markets' innate desires (as in "there are none yet").

In the accompanying FAQ found HERE

How can unusually severe weather affect employment and hours estimates?  

In the establishment survey, the reference period is the pay period that includes   the 12th of the month. Unusually severe weather is more likely to have an impact on   average weekly hours than on employment. Average weekly hours are estimated for paid   time during the pay period, including pay for holidays, sick leave, or other time off.   The impact of severe weather on hours estimates typically, but not always, results in   a reduction in average weekly hours. For example, some employees may be off work for   part of the pay period and not receive pay for the time missed, while some workers,   such as those dealing with cleanup or repair, may work extra hours.  

In order for severe weather conditions to reduce the estimate of payroll employment,   employees have to be off work without pay for the entire pay period. Slightly more   than 20 percent of all employees in the payroll survey sample have a weekly pay   period. Employees who receive pay for any part of the pay period, even 1 hour, are counted in the payroll employment figures. It is not possible to quantify the effect of extreme weather on estimates of over-the-month change in employment.  

In the household survey, the reference period is generally the calendar week that  includes the 12th of the month. Persons who miss the entire week's work for weather-related events are counted as employed whether or not they are paid for the time   off. The household survey collects data on the number of persons who had a job but were not at work due to bad weather. It also provides a measure of the number of   persons who usually work full time but had reduced hours due to bad weather.    Current and historical data are available on the  household survey's most   requested statistics page at http://data.bls.gov/cgi-bin/surveymost?

Section: "Employed - Nonagriculture industries, Bad weather, With a job not at work"

Here's the kicker... From the heading: "Employment Level - Persons At Work 1-34 Hours, Noneconomic Reasons - Bad Weather, Nonagricultural Industries, Usually Work Fulltime"  (so these are folks who usually work full time, but didn't due to weather).

Biggest weather-related disruption on labor market in this 10-yrs of record-keeping.

Volatility came and went early today for bond markets.  In fact, the only real volatility existed inside a fairly narrow range that would have barely registered on Tuesday.  For MBS, it's been a 3/32nds range since 11:30am. 

Treasuries were only slightly more volatile as large, inexplicable trades flow in and out surrounding an exceptionally heavy slate of corporate bond issuance.  (If you need a refresher on how corporate bond hedging can trickle down to MBS via Treasuries, check out this old post on last Fall's Verizon deal).

Despite the lack of substantive gains, several lenders repriced positively.  MBS are drastically outperforming Treasuries on a lack of supply, a supportive-looking technical relationship between the two, and the aforementioned corporate hedging taking a more Treasury-specific toll.  Then of course there's the geopolitical risk 'unwinding' process which also affects Treasuries more than MBS. 

All this is minutia in the bigger picture as bond markets have merely sought out central territory from which to digest tomorrow's jobs data.

The ISM Non-Manufacturing (aka ISM Services) data came in weaker than expected.  The headline was only moderately weaker, and somewhat offset by an increase in New Orders--a theme also present in the Manufacturing version of the report.  That's consistent with the notion of a weather-related slowdown affecting near term business, but not shutting down longer-term demand.  That said, the weather can't fully explain the change in the employment component of the data, which fell to it's lowest level since March 2010.

ISM Services

• Services PMI 51.6 in Feb vs 53.5 forecast, 54.0 in Jan
• Lowest since Feb 2010
• Business Activity 54.6 vs 55.1 forecast
• Prices 53.7 vs 57.1
• New Orders 51.3 vs 50.9
• Employment 47.5 vs 56.4
• Thoughts: market optimists are still going to say that these "lowest since 2010" numbers are obviously dragged down by the weather and while the data may have been weaker without the weather impact, it wouldn't have been that week.  The counterpoint still suffers from the inability to prove otherwise until we get data covering a non-snowy month.

Bond markets have responded generally favorably, with MBS moving back to positive territory (up 1 tick currently) and 10yr yields very close (2 bps lower than pre-data levels).  Considering the magnitude of the 'miss,' however, these aren't very big reactions.  This either suggests that some market participants are on board with the weather-related arguments or that they're simply trying to keep trading levels in the pre-Ukraine neutral zone closer to 2.74 (thus not willing to rally too much from 2.72).

In a news conference overnight from his home in Moscow, Russian President Vladimir Putin unintentionally summed up recent movement in US Treasuries by saying recent market turmoil is a tactical, temporary decision by investors.  It would actually be hard to offer a more succinct conclusion on how bond markets treat certain geopolitical events.

When the logical suggestion of such events is in line with something that bond markets might have done anyway, the periodic gluts of movement and volume tend to 'hide behind' newswires relating to said event.  The overnight session was no different where a 1am newswire indicating a pullback of Russian military exercises sent Treasury yields sharply higher.  The Putin news conference a few hours later made for another smaller bout of weakness for bond markets.

The net effect was a 10yr yield walking in the door near 2.65 (currently 2.64%).  That's just over 0.03% higher than yesterday's latest levels.  MBS opened right in line with yesterday's weakest levels connoted by Fannie 4.0s down 7 ticks at 104-27.  They're currently down 5 ticks at 104-29.

There is no significant data on the calendar today, even though the 9:45am ISM New York index sounds like it should be significant.  As such, we'll remain susceptible to Ukraine headlines and compelling moves in other markets.

Bond markets were already coping with weakness ahead of the 10am release of the ISM Manufacturing PMI--the most significant piece of data this morning.  The report came in stronger than expected at the headline level, but there were a few mitigating factors. 

ISM Manufacturing

• PMI 53.2 vs 52.0 forecast, 51.3 previously
• Employment Index unchanged at 52.3
• Production Index 48.2, first time below 50 since May 2009
• New Orders 54.5 vs 51.2 previously

The unchanged employment component helps bond markets hold ground this week, with NFP coming up on Friday and of course, the production index being at 5-year lows is a major counterpoint to the stronger headline (but probably the component most-impacted by the weather). 

Rather than look at any of the counterpoints in the reports component indices, it's perhaps most useful to simply look at the headline reading.  It's relationship to previous results isn't exactly confidence inspiring.

MBS are 2 ticks off the lows seen heading into the data and Treasuries have recovered as well (still following stocks).

Treasuries rallied significantly overnight on geopolitical tensions surrounding Ukraine.  In classic 'flight-to-safety' fashion, stock prices are down big and MBS can't keep up with Treasury gains.  Fannie 3.5s are only up 7 ticks compared to 13 ticks in 10yr Treasury price (0.464 in terms of yield).

This morning's first round of data--Incomes and Outlays--isn't much of a market mover anyway, but is clearly not up to the task of giving any guidance this morning despite showing stronger-than-expected consumer spending.

Incomes and Outlays

• Personal Income +0.3 vs +0.2 forecast
• Spending +0.4 vs +0.1 forecast
• Adjustments for ACA affected the spending figures

Coming up at 10am, the ISM Manufacturing report is in a different league than the spending data from 8:30am.  A noticeably stronger or weaker result will not be as easily overlooked though the situation in Ukraine could serve to limit selling pressure if the ISM data is significantly stronger.