Yesterday marked the first legitimate swoon in US bond markets in more than a week.  The 3 days prior were especially flat, with 10yr yields ending the day at 2.021, 2.023, and 2.028.  That's an uncommonly narrow range of closing levels, signalling that markets were/are waiting for "something."

Although much of our discussion has focused on next week's FOMC meeting at that probable "something," yesterday's trading suggested that this week's ECB meeting could in fact be a nearer-term something.  Reason being: European bond markets clearly led the pace of the weakness yesterday with US bond markets only seeing a fraction of the European losses.  Today's European session saw a reversal of that same trade, making for a stronger open in MBS and Treasuries and helping facilitate morning gains.  By the time we look at a chart of October's post-NFP time frame, the European thesis is all but gospel.

It's tempting to bring equities markets into the picture and say that this morning's rallies in bonds coincide with stock losses, even though we're not seeing much of a response in the bigger picture.  Even in the smaller picture, the correlations have been hit and miss (for instance, in the past few minutes, the S&P has fallen 15 points and Treasuries/MBS have barely blinked), but it should count for something that stock prices just hit the week's lows at the same time bond prices are hitting the week's highs.