On the heels of stronger-than-expected GDP in China and growing speculation about the Bank of Japan’s potentially aggressive shift at next week’s policy meeting (removing 0.1% rate floor and embarking on open-ended QE), risk markets (equities, Yen, Euro, bond yields) moved higher throughout the Asian hours. This let to 10yr yields to a break of yesterday’s highs just before 3am at 1.896.
Europe, however, took things back in the other direction. German Bunds fell from 1.64 to 1.56 in a few short hours and US Treasuries followed a lower magnitude version of the same movement, bringing 10’s in the door just under 1.86 and MBS 5 ticks higher at 104-03. These are the same levels that prevail at the moment, as we wait for Consumer Sentiment as the sole economic data of the morning.