The headline is the recap today. If an hour of the day ended with an “AM,” it was good for bond markets today. The only exception would be the midnight-2am time frame. So the rallying hours were really 2am through Noon eastern, and therein lies the clue as to the source of the strength.
2am-Noon Eastern coincides with most the European market hours, and Europe clearly provided the fuel for today’s bond market rally. German Bunds had a mind-bending rally today, moving from highs of .61 to lows of .53. If that doesn’t sound like a lot, consider that US Treasuries only managed a little better than HALF that pace over the same time frame in terms of price. Or simply consider that Bunds (these are Europe’s benchmark 10yr notes, by the way) ended their day 5bps lower and US 10yr Treasuries are heading out the door half a bp higher!
Domestic bond markets were in position to extend the rally in the event that the ISM data was weaker than expected. As we’ve discussed recently, the risk of additional gains in bond markets is trickier to prepare for than the risk of a bounce back toward higher yields. As such, traders wanted to be at the best levels of the day at 10am. When the data came out just slightly below forecast, it wasn’t enough to push the snowball down the hill, so bonds ebbed back toward unchanged levels and enjoyed a mostly quiet afternoon from there on out.