The stakes are high for the rest of this week as far as bond markets are concerned.  The anxiety is obvious.  Is this the turning point where we bounce off periodic lows and head higher?  Even if we're only concerned about the next few weeks, that's all the time it takes to be a very real issue for current pipelines.

As we discussed this morning, today was to be an intermission of sorts ahead of tomorrow's NFP, but one that could still offer clues as to the underlying momentum.  That momentum looked biased toward further weakness out of the gate this morning as Jobless Claims data didn't suggest any reversals and Q2 employment cost data allayed some fears about wage pressure (hat tip to MBS Live cornerstone Andy Horowitz for pointing that out this morning).

Soon after the first wave of selling, bond markets dug in and began fighting back toward unchanged levels.  A much weaker-than-expected Chicago PMI report only helped modestly at 9:45am, but at least it didn't hurt. 

Doing most for the cause has been 'month-end' tradeflows as certain market participants are forced to buy bonds to bring portfolios in line with benchmark indices.  We're also seeing evidence of "asset allocation" trading where money managers are reducing holdings of stocks and adding to bonds. 

On a final note, a late-day bond rally in Europe is adding yet enough source of strength for domestic bond markets.  All of the above has been just enough to get Treasuries and MBS back in positive territory on the day.  With lenders having priced defensively out of the gate, many of them have already repriced for the better.