The story so far this morning is as simple as the headline, with the slight addendum being that Chinese economic data actually began the push toward higher yields overnight. But it was indeed Europe which has had the biggest impact so far. The troubles began in mild fashion with a strong Spanish debt auction. When US Treasuries have strong auctions, it's good for yields. Same story with German debt auctions... But the European periphery is more of a proxy for the other side of the risk equation.
When bond auctions in Spain (or Italy, or Greece, et. al) are well-bid, it's generally a net-negative for the so-called "core" debt issuers. The biggest hits are typically taken by the biggest representative of the core: Germany. German Bunds were already weakening significantly overnight, but US Treasuries were doing a fair job of avoiding the spillover. After the ECB announcement and throughout Draghi's press conference, Bunds tanked severely, the Euro skyrocketed, and US debt merely followed a small portion of that movement.
All things considered, to have only sold off to roughly a 1.90% level in 10yr yields is pretty uneventful. Unfortunately, it comes at a time where 10's were hoping to break back below a critical long-term inflection zone in the mid 1.8's. This is not helping. The 30yr Bond Auction at 1pm can either add to this pain or mitigate it. This will be an "either/or" sort of thing with respect to MBS holding their 2-day lows around 104-10, though lenders should be generally less quick to reprice positively given that today is the roll.
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