The overnight session got off to a slow start for US bond markets as Japan was out on holiday.  This is important not only because overnight Treasury trading relies on Tokyo being open for business, but also because Friday's big market mover concerned news from the Bank of Japan.  As such, Japanese markets had been the epicenter of Friday's move, but didn't have much time to trade before going silent for the extended weekend.

Treasuries and European bonds started the European session in slightly stronger territory, but soon began trending toward weaker levels.  Stronger PMI data hasn't helped.  This was a mildly negative factor when it concerned UK PMI overnight, but made for a bigger push when the widely-followed ISM Manufacturing PMI came out stronger than expected at 10am. 

It's worth noting that this is probably one of the biggest reactions to an ISM report in months.  Or at least it seems pretty big at face value.  It's also worth noting that one of my favorite observations about the current era of detachment from economic data is that reports will often look like they mattered if they happen to fall in line with prevailing tradeflow momentum.  Today's ISM report certainly fits that bill as tradeflows were skewed toward weakness from the outset.  The data just made for great "cover" for sellers to hide behind.

10yr yields topped out at 2.38 and Fannie 3.5s bottomed out at 102-05.  They're now at 2.366 and 103-07 respectively.  Quite a few lenders repriced negatively once the losses looked to have run their course.