The overnight session was scary for bond markets as 10yr yields rose to test the 2.04 technical level. Interestingly enough, trading went dead flat at the time, and didn’t make a decision on where to go next until after the 8:30am data (roughly 3 hours). With the data coming in weaker than expected (Retail Sales -0.8 vs -0.5 forecast and Jobless Claims 304k vs 285k forecast), the rally began.
Not long after the data, MBS and Treasuries were back into positive territory. 10’s encountered initial resistance at yesterday’s lows of 1.974. Trading in European bond markets and Forex heading into the end of the European session helped domestic bonds break through resistance. That’s all the more meaningful considering that bond markets would typically be building in a bit of a concession before the auction (1pm). That said, 30yr bonds are building in a concession relative to the rest of the yield curve (meaning they’ve gained less ground than 10’s, etc.). This also means that a strong auction would be a big vote of confidence in a firm bounce versus the last 8 days of weakness.