In the day just passed, bonds weakened slightly as corporate debt issuance weighed on Treasuries.  Afternoon headlines regarding US/China trade negotiations also served to push bond yields and stock prices higher.  On a positive note, the bond market losses were primarily a problem for Treasuries.  MBS outperformed significantly with Fannie 3.0 coupons losing only 2 ticks (.06) by the end of the day.

In the day ahead, bonds will have a chance to defend overnight gains courtesy of Europe.  At 3:15 and 3:30am, manufacturing data hit in France, Germany, and the EU.  It was weaker than expected, causing an immediate and obvious reaction in European bonds, equities futures and US bonds.  Of all the potential trading motivations on any given day, this stands out like a sore thumb today.  (NOTE: the times in the table below are PACIFIC whereas all other times discussed in this commentary and the subsequent chart are EASTERN).

Overnight strength inspired by European data and European trading can cause issues for the US trading session later in the day.  Most commonly, we see bonds shift toward weaker momentum after European trading winds down for the day (around noon).  The 1pm 5yr Treasury auction would simply offer another reason for traders to favor selling vs buying at that time.  If we DON'T see this expected weakness, it would tell us something about underlying resilience in US bond markets.