Bonds are starting the day in much stronger territory, and this raises a few interesting points and questions. First off, it's interesting to see a 2nd straight day of gains despite the potential risks involved with this afternoon's 10yr Treasury auction and tomorrow's CPI data. In the past, when we've seen these sorts of lead-offs ahead of auctions, it's generally been a great indicator for additional gains. Is the same true this time?
We won't really know until after the auction, and even then, tomorrow's CPI remains a much more significant potential market mover. The gains seen so far could be as simple as Treasuries being pulled reluctantly lower by EU bonds overnight. The following chart has matching ranges on the y axis (so even though EU and US 10yr yields have their own axis, they are compared on equal footing).
The takeaway there is that US yields definitely hit some resistance at 2.90 despite having the option to follow EU bonds to even lower yields. This also suggests 2.90% as a great technical level to watch for the rest of the day.
The other caveat involves the bigger picture trend. Don't forget that last week was rough. Past examples of pre-auction lead-offs rarely occur in an environment where bonds are bouncing back from an aggressive selling spree in the previous week. In other words, this could simply be a technical correction back to the center of the sideways trading range--i.e. a way for bonds to get more nimble/neutral ahead of the big potential market movers. Bottom line: 2.90 is smack dab in the middle of the sideways range boundaries we laid out at the start of the week.