The ECB's LTRO (Long Term Refinancing Operation) dominated the overnight session. But as it turns out, it's effects on domestic yields were mostly seen over the course of yesterday's choppy trading as the 2 day chart leaves us with the distinct impression that the "risk-off" trade gradually built-in a concession for the release of the official tally from the LTRO. 

In other words, 10yr yields rose sharply yesterday, and we think it has more to do with front-running the LTRO than anything else. Things went dead sideways overnight until whisper numbers started circulating. That took yields higher at first, in choppy, low-volume trading. But with the same sort of surprise heard in Boris Karloff's voice when he proudly announced the Grinch's heart grew three sizes, long-end yields bucked the trend andactually turned lower. At risk of forcing the continuation of the metaphor, one might even say 10yr yields are charging down Mount Crumpet this morning, now bringing high 1.8's to all the little Who villagers. 

This "LOTRO failing to reverse the early December Risk-Off rally" isn't a done deal yet. Volume remains low enough that further volatility is possible, but for now, it at least seems that yesterdays losses have been arrested. 10's have dipped into 1.8's on a few occasions in recent minutes and currently stand at 1.909. MBS opened flat and are currently down 1 tick at 102-10 in Fannie 3.5's. S&P futures are down about 15 points from LTRO announcement time.

The only major piece of scheduled economic data this morning hits at 10am with Existing Home Sales.  The afternoon brings the last of this week's note auctions with the 7yr at 1pm.  MBA Apps are already out this morning and updated in the economic calendar table below: