Bond markets gave back a small chunk of yesterday's rally heading into the overnight session on comments from the Bank of England regarding an accelerated rate-hike outlook.  At least that's where most of the blame for this morning's weakness seems to have fallen.  In actuality, one could simply point to the fact that rates hit technical resistance well before the BOE news (10yr yields bouncing before breaking 2.57) and that anything between there and 2.66 would be fair game unless we found reason to extend the rally.

In other words, yesterday's positive session meant we had a shot at a stronger move lower in rate or that we'd simply be leveling-off between the two closest technical levels, 2.57 and 2.66.  In terms of Fannie 3.5s, this is approximately 101-20 to 102-10. 

Treasuries actually were able to improve for much of the overnight session, but changed course after stronger Eurozone employment data.  It's not that the data was any sort of barn-burner.  It just wasn't what we needed to break 2.57%.  On a Friday without any big data ahead, if Treasuries weren't going to break 2.57, and if the supportive ceiling in the range is up around the mid 2.6's, a quick move up to the low 2.6's is not too much to ask--and a pretty ho-hum sell-off at that!

That's what we got this morning, and as traders came on line after 8:20am, they were in general agreement about reinforcing the range trade.  All this means is that no grand aspirations emerged overnight or today.  Markets are deferring judgment on their next move until at least next week.  The result is that we're not carving out any new gains (beyond yesterday's best levels) today, but the consolation is that we held ground without making any new lows.