In the context of a fairly narrow trading range by historical standards, bond markets had a volatile day. The start of the overnight session saw the strongest levels before decent economic data in Europe began lifting bond yields higher. A very strong ISM Manufacturing report at 10am teamed up with already-negative momentum to bring MBS and Treasuries to their weakest levels since early October.
The weakness had run its course by 11:15am, which is telling considering stock markets were not putting in a very correlated performance. This left us to conclude that Europe is the key consideration so far this week (as European bond markets bounced at the same time in perfect correlation with Treasuries/MBS). That’s essentially as it should be with Thursday’s European Central Bank announcement coming up on Thursday.
To be fair to domestic economic data, it was certainly traded-upon today, but it has to be taken with a grain of salt considering it provided an opportunity for market participants to trade how they were already potentially planning on trading. European weakness isn’t the only factor there. Corporate bond issuance was active today, and when several deal pricings are announced in the afternoon, it’s not uncommon for that debt to have been hedged via Treasury sales earlier in the day. All things considered, 10yr yields closing only 1bp higher is another resilient showing, though the intraday weakness was (and still is) disconcerting.