The overnight session was much less interesting for Treasuries today (compared to yesterday).  In the sense that European bonds weren't pushing yields higher, it was a much better set-up for the day.  But in the sense that Treasuries weren't responding to a moderate rally in European bonds or declines in oil prices, it was also a bit ominous. 

Bonds maintained their sideways tack despite supportive performances in other markets (falling stocks and oil prices).  This was ostensibly due to anxiety over the afternoon's 7yr Treasury auction.  The results and subsequent trading corroborate the 'anxiety' thesis.  Despite an exceptionally weak auction, bonds actually rallied modestly, but noticeably in the last 4 hours of the trading day. 

The net effect was a 1.5bp gain in 10yr yields and just over an eighth of a point in Fannie 3.0 and 3.5 MBS.  Given that much of the improvement came after initial rate sheets, quite a few lenders repriced--albeit from the conservative holiday baseline price levels.

Tomorrow is a half day with bond markets closing at 2pm ET.