Last night was intense to say the least.  Bonds surged to the best levels in more than a month, and were close to the best levels in nearly 3 months after Iran attacked several air bases in Iraq.  In the heat of the moment, the spectacular and ugly machine that is the collective consciousness of digital communication decided "this means war!"  Had that sentiment been accurate, 10yr yields would be in the 1.6's at least.

As it stands, there is no war.  The party line is that, while the military targets can be referred to as "US assets" or as housing US troops, there were not any US casualties.  News media and internet 'experts' seemed to magically conclude VERY early in the night that Trump's secret line in the sand for retaliation was the presence of US casualties.  If someone wanted to make a case for it, there's certainly a way to talk about some sort of deliberate effort on both sides to orchestrate a seemingly significant retaliation that instead puts the recent flare-up behind us. 

But there's no way to know all of the considerations in play behind the scenes on both sides of this conflict.  Speculation doesn't really help.  All we really know is how markets are responding.  That's real.  That's measurable.  And the market response did a VERY good job of representing the true risk of war as it waxed and waned in the overnight session.  Yields never truly bought into the idea, and it only took them about 2 hours from initial reports to begin pricing out the risk.  The net effect is that bonds begin the day in weaker territory.  You could have made a lot of money betting on this eventuality last night, because it was nearly impossible to imagine.

But Matt!  We came close to starting a war with Iran, and after all, they did attack military targets associated with the US and they killed US military allies.  How could that not be worth at least some small shred of improvement?!

Valid question, but an easy answer: the fact that we're not going to war this morning is significant.  Markets have been waiting to see what the repercussion would be from the killing of Soleimani.  As of last night, there's a much greater chance that the repercussion has come and gone.  If the fear/uncertainty was worth a certain moderate amount of strength in the bond market, the clearing up of that uncertainty is worth an equal amount of weakness.  With that in mind, we should at least be prepared to see additional weakness if a few more hours and days tick by with no additional escalation.

I'll close with a quick public service announcement that is fresh on my mind after much of the "news" I saw last night. This will go without saying for most, but I feel like it bears repeating. Don't feed the trolls! Don't assume something you read on the internet is true.  Don't assume a picture or video posted about any given event is really from that event (for instance, multiple pictures from the crash site of yesterday's Ukrainian flight out of Iran were from entirely unrelated events in the past).  The internet and social media have exponentiated our ability to spread BS like wildfire.  If you see BS, be an American hero and call it out.