• Bonds slightly weaker overnight; low volume; lack of inspiration
• Domestic trading stayed very flat until 11:20am
• Bonds rallied sharply but briefly
• Causality contenders include Romney speech, oil/stocks, and general pre-NFP position-squaring
• MBS outperformed due to big scheduled Fed buying combined with Treasury underperformance due to corporate bond issuance

A seemingly simple day turned out to be somewhat complex in hindsight.  The overnight and early morning trade was utterly forgettable.  Even the economic data failed to produce any noticeable reaction.  That's not so surprising when it comes to the 8:30am data, but a bit more so with respect to 10am's ISM Services data.  Perhaps the fact that it was so close to consensus (53.4 vs 53.2) accounts for the lack of conviction.

The entirety of the day's excitement arrived in one concentrated dose between 11:20 and 11:40am.  Incidentally, this was the same time that Mitt Romney took the stage to denounce everything Trump-related (times change).  Bonds rallied sharply--too sharply to be solely attributable to Romney.  Plus, if the move was all about Mitt, we would expect to see similar movement in stocks.  Stocks did sell-off just slightly during the first part of the episode, but certainly weren't ordering drinks at the same table as bonds.

So we move on from Romney and consider things like a high-conviction rally in European bond markets into the European close.  This explanation is intriguing because the Treasury rally ended precisely when European bond markets closed.  Then there's the simple matter of pre-NFP position squaring, which simply means traders are moving closing any open bets.  If a good amount of bets were made at lower rates, expecting them to go higher, it's conceivable those traders would be eager to cover once 10yr yields crested 1.84%.  This morning would have been a good opportunity.

Whatever the case may have truly been, it wasn't a very big deal in the bigger picture.  10yr yields dropped about 3bps and lost almost half of those gains by the close (ending perfectly unchanged, by the way).  MBS picked up a bit more than an eighth of a point, but managed to hold on to the gains better than Treasuries.  Credit today's Fed buying operation (scheduled) for the outperformance, along with some inherent drag on Treasuries from persistently high corporate bond issuance (Treasuries can be sold outright during the rate-lock process on corporate bonds, much like MBS are sold to lock rates on mortgage pools).