The overnight session was fairly uneventful and mildly negative for bond markets. Things drifted mostly sideways in the Asian session despite a scary, but brief sell-off in equities. Bond markets weakened into the European leg after the Euro bounced off new lows (1.2647). There’s also word of a big asset allocation trade in the UK, helping stocks, hurting bonds.
Interestingly enough, Treasuries drew their own line in the sand just barely over 1.74 and have bounced there 4 times since 4:50am New York time. If MBS have an analogous level it’s probably 104-16 in Fannie 3.5’s–the site of their only instance of ground-holding so far this morning.
With no economic data on the calendar, and no hotly anticipated updates out of Europe, bond markets will have to look for guidance elsewhere. So far, it looks like bonds are at least cognizant of stocks, given the rising 10yr yields into the 9:30am stock market open. Yields have been falling since then with a reasonable amount of correlation to stock prices.
10’s are currently at 1.7260 and Fannie 3.5’s are off only 3 ticks on the day at 104-19. The rest of the session is very much a “wait and see” affair. Again, nothing of note on the calendar or radar, so we’ll cautiously press on, but remain tuned in to any significant European headlines or noticeable shifts in the “risk on” trade that equities markets looked like they were trying to pursue overnight.