Bonds began the new year on the defensive thanks to a deluge of corporate bond issuance as well as stronger ISM Manufacturing data.  By 10:15am, 10yr yields were at their highest levels of the day, and nearly 7bps higher than last week's close.  Fannie 3.5 MBS were more than 3/8ths of a point weaker.

But that's when the comeback began.   Bond markets braced for the typically detrimental effects of corporate issuance by selling.  As the issuance announcements kept coming, traders found themselves over-prepared.  In other words, they'd erred too much on the side of selling, and thus were able to start buying again.  Granted, there is a far more complex way to explain this, and there are other factors in play today, but that was the day's central theme in a nutshell.

10yr yields and MBS both made it back within a hair of 'unchanged' on the day.  Due to lenders' conservative pricing strategies ahead of the holiday, most were offering better rates by the end of the day, after a slew of positive reprices.