Bond markets began the day in strong territory, building on yesterday's positive reversal. 10yr yields were several bps lower at the open and bonds continued to rally through 10:30am. Incidentally, the 10am economic data was NOT a factor in the bond market strength. New Home Sales came in much weaker than expected, but it was really the 9:45am Markit Services PMI that gave the bond rally its final push of positive momentum.
The market data was a blessing and a curse for bonds because it served as a trigger point for traders to take their chips off the table and reshuffle the cards. As the new hands were being dealt, stocks and oil were beginning to move higher. Bonds were also thinking about the 1pm Treasury auction (it's always easier for traders if yields move higher into an auction).
By 2pm, most of the day's bond gains had been erased by the strong move in stocks, but the volatility was just getting started. Stock prices blasted higher, more than doubling the initial move off the lows. Bonds were forced to follow, with 10yr yields ultimately losing more than 3bps and Fannie 3.0s falling an eighth of a point day-over-day.
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