The overnight session was orderly and positive for Treasuries. Yields continued mechanically grinding lower from yesterday’s bounce at 1.785 (10yr Treasuries). Early domestic traders piled on to the rally, with month-end index buyers getting in before further potential price increases. This made for a trend that was largely intact before the weak economic data at 8:30am, though the data did provide a bit of a boost.
Bonds looked to be bouncing with stocks at the cash open, but held their ground as stocks topped out. The next leg of the rally followed Greek headlines that effectively increased the odds of a Eurozone exit. Greek bonds tanked and German bonds soared. Treasuries didn’t take too much part in that move, but it did spill over to some extent.
More than anything, there’s a palpable sense of panic, desperation, and compulsion when it comes to snapping up the most stable sovereign debt. We have to be prepared for the fact that this could have a lot to do with month-end trading positions, but it leaves all sorts of crazy doors open for next week. Bottom line, the longer term downtrend is intact. It would take a massive sell-off to call that into question.
The only real frustration of the morning is the inability on the part of MBS to keep up with the broader rally. This is to be expected, of course, but still not fun to watch. Fannie 3.0s have been bumping into a ceiling at 103-14 all morning will 10yr yields trend gradually lower.