Today's first significant source of inspiration for bond markets came in the form of comments from Fed Vice Chair Fischer.  While he stuck to the same rhetoric as other Fed speakers for the most part, markets were caught somewhat off guard by his thoughts on the neutral Fed Funds rate potentially having moved lower compared to past precedent.  In other words, when the Fed begins raising rates, it might not be as aggressive as some market participants expect.

That possibility was worth something to shorter-term bonds today--especially considering they've been weakening rapidly versus longer term bonds since mid July, and couldn't be blamed for taking any little opportunity to consolidate. 

When short and long term yields are performing differently, there's no underlying connotation regarding which direction yields are moving in general.  If we say that short term yields are outperforming, that could mean any of the following:

• short-term yields are rising, long term yields are rising more
• short-term yields are falling, long term yields are falling less
• short term yields are falling or flat, long term yields are rising

In today's case, the shortest yields were very close to flat while 10yr yields were up nearly 7bps.  The tone for the longer maturities was set by a heavy day of corporate debt issuance, among other things.  Corporate debt creates extra supply in bond markets, thus putting pressure on prices and bringing rates higher.  Some investors also moved out of bonds and into stocks as the latter put in impressive gains from Friday's lows.

As is typically the case, MBS didn't get hurt as badly as Treasuries.  Fannie 3.5s were down less than a quarter point, while 10yr Treasury prices were down more than half a point.