After defying overnight pressure from European bond markets to open in stronger territory, domestic bond markets were soon facing their own pressure.  Economic data came in stronger than expected.  Of particular note was the Employment Cost Index, which suggested a solid increase in wages.  The significantly stronger Jobless Claims data--while of questionable importance--certainly didn't make any case against weakness in the morning.  And weakness is what we got.

10yr yields climbed as high as 2.11 by 10:50am--the same time that German Bund yields were hitting their highest levels since early March.  This is now the biggest correction in European bond markets since the rally began more than a year ago. With that in mind, US Treasuries are handling it pretty well, and MBS are handling it even better.

Domestic bond markets increasingly gained traction after the European close.  Heading into the 3pm Treasury pit close, traders flipped over their month-end cards, and everyone was revealed to be a buyer.  The rally gained further momentum from asset allocation trades selling stocks and moving into bonds and most importantly from traders covering short positions in bonds (previously sold short, expecting higher rates, but now buying to cover due to the strong afternoon rally).

It's been enough to get trading levels back into positive territory.  Most lenders have repriced with better rates.