Treasuries were pummelled well before most domestic traders' left for the office this morning.  10yr yields were up to 2.37% (more than 4bps higher) by 6am ET.  US Treasuries trade overnight among Asian and European investors.  The Asian session was relatively quiet, with yields holding mostly flat.  The European session was the clear culprit behind today's global bond market weakness.

One way we can observe the European influence is to look at how European benchmark yields (Germany Bunds are the 10yr EU benchmark--basically the yardstick by which long-term European debt is measured) compare to the US benchmark 10yr yield.  The question of who's leading whom quickly becomes clear:

If your mind's eye notices that German 10yr yields are breaking above their previous plateau, you're not alone.  The rest of the world is noticing too.  There's a fair amount of fear regarding the ECB approaching a similar policy pivot as the Fed in 2013 (taper tantrum).  This began in earnest with Draghi comments on June 27th and the trend has been unfriendly ever since.

Yesterday offered some hope that the worst of the selling-spree was over.  There had been incremental weakness in US bonds at the end of June (a few days where Treasuries did worse than European bonds).  Then both EU and US bonds had a positive day to start July's first full day of trading.  

All of the above suggests that the month-end trading environment may have added to the weakness.  As we discussed, we would have needed to see more strength today to confirm yesterday's move as something other than the shuffling of trading positions for the new month.  The pace of the overnight losses doesn't paint a hopeful picture for anything remotely resembling "more strength."  

Bottom line: yesterday was a misdirection play, driven by tradeflows and position considerations.  This trend remains unfriendly, and it will take more than weak US economic data to turn things around.  Case in point, this morning's ADP Employment data was weaker than expected--typically a good thing for bond markets.  Yet the overnight weakness was completely unfazed.  The most insidious thing about a trend driven by ECB tapering fear is that it's susceptible to "fits and starts."  After all, there was plenty of green during the 2013 taper tantrum, but there was much more red.