The overnight momentum, fueled by global risk-aversion, has only gathered steam in the domestic session.  After the first half of the day, Treasuries and MBS have recovered all of their losses from Friday's latest levels.  To be sure, the selling in stocks and the rally in European bond markets has far outpaced the move in domestic bond markets--especially MBS--but it's hard to complain when things are moving in the right direction.

Corporate issuance is present, yet again, but in shorter supply in terms of dollar amounts.  That's made for a generally positive backdrop for the flight-to-safety rally.  Said rally not only got a boost from stock market weakness, but also from IMF Director Lagarde commenting on downside risks to global growth from China and the currency implications of "monetary policy realignment.'  In other words, Lagarde is telling the Fed that a rate hike isn't going to help the global growth that the Fed itself is concerned about.  Vicious cycle to be sure.

Markets agree.  S&P futures are off more than 40 points intraday. German Bunds closed nearly 10bps lower (which is a big move when you begin the day at .695).  10yr yields are down more than 8bps already and Fannie 3.0s are closing in on a half-point gain.  The shorter the duration, the weaker the gains.  For instance, Fannie 3.5s (which don't last as long as Fannie 3.0s) are only up 11/32nds.