Bond markets are slightly weaker overnight following a fairly uneventful European session.  10yr yields rose roughly 5bps to 1.85 and S&P futures added about 15 points, both in low volume, uninspired trade. Most of the chatter centers on German IFO data (a business climate index) coming in stronger than expected, but in order to reconcile that with the fact that the data was released at bond markets' weakest levels of the night, you'd have to buy into the suggestion that a rumor of the IFO number was making rounds an hour earlier or more. We don't particularly care enough to try to find out how credible that assessment might be considering the twofold factors of volume and volatility. Markets haven't moved too terribly much and the year-end-effect continues to be seen in volumes. 

Even without German IFO's to lean on, why not just assume some ebbs and flows of the risk-on/risk-off trade as domestic 10yr yields hit the high 1.7's yesterday and with today's auction representing a moderate step toward the longer end of the curve (5yrs vs yesterdays 2's), the need/desire to get in position for the auction? Other popular topics overnight included Spanish and Greek bill auctions, but again, we're seeing ALL the movement happening before all those things, and are thus resigned to either accept the fact that the IFO "rumor" was the driver or simply our easier to swallow "ebbs and flows and low volume ahead of Treasury supply and EU long-term repo operation" theory. Either way, we're good. 

Here's a clip from MBS Live, not that 5's are weaker than 10's relative to yesterday, either due to some corrective flattening or preparation for today's auction.

Today's data is fairly light, but again contains a housing-related report as well as a more-important auction (as opposed to yesterdays unimportant 2yr auction)