The timing and nature of yesterday's Italian headlines created a fair amount of risk for bond markets today.  As we discussed yesterday (in the Huddle and the Recap, for instance), Europe didn't get much of a chance to trade news that likely suggested a bit more weakness than we saw.  

What news was that?

In not so many words, Italian politicians are figuring out how to move forward with selecting lawmakers for a new government.  This helps to avoid elections that ran the risk of turning into a vote on on Italy exiting the EU.  That potential exit was the primary source of motivation for the recent bond market rally.

The overnight move would quickly look less interesting if we zoom out to the bigger picture.  It doesn't really stand out in terms of size or volatility.  Importantly though, it does bring US 10yr yields very close to the key ceiling levels marked by the teal lines in the following chart.  This is "the gap" that was created when the week began with a sharp rally, causing yields to "gap" lower from Friday's close.  Such gaps are widely viewed as important lines in the sand when they emerge.

Nonfarm payrolls is coming up in a few minutes and, as always, could set the tone for the rest of the day.  We'll break it down in the first update (or alert) on MBS Live.