During the 3.5-day Thanksgiving week, we expect to see a lack of participation in bond markets juxtaposed with condensed data and volatility. Data and participation were certainly limited today and accordingly, there wasn’t much movement. The small amount seen was clearly connected to headlines and events. It also reacted more than it normally would in a few cases.
The first move of the overnight session was logical enough. One of the most widely-followed pieces of economic data in Germany was stronger than expected and bond markets consequently lost some ground. As the domestic session took over, a weaker Markit PMI report (typically not a market mover) may have actually gotten the ball rolling on a bounce back from overnight weakness. Shortly thereafter, comments from Germany’s Central Bank president further fueled global growth concerns as he threw a bit of cold water on the prospects for the European Central Bank purchasing sovereign debt.
From there, the only remaining market mover of the day was the incredibly strong 2-yr Treasury Note auction. It’s hard to say exactly how overblown the reaction was here. On the one hand, any discernible reaction to 2yr Treasuries could be considered “more” than we’ve seen in years. On the other hand, this was one of the strongest 2yr auctions we’ve seen in years, and it also may hearken a bit of unforeseen demand for Treasuries heading into month-end. After beginning the day in negative territory, both MBS and Treasuries turned positive following the auction.