Bernanke spoke late enough in the day yesterday that his market-moving question and answer session escaped the brunt of the domestic session's blow.  There was some initial reaction right before markets closed, but only enough to let us know the blow was well-struck in a bond-market-friendly direction.  When Futures came back on line, they were pointing to a big move with implied yields at 2.52 at first, but movingup to 2.56 shortly thereafter.  Either way, this would be a far cry from the 2.62 that ended the session.

Yields did indeed open in overnight cash trading at 2.56. ("cash" distingquishes from "futures."  Both are trading concomitantly most of the time, but futures cover some hours that cash does not).  What gives?

Several things "give."  To be ruthlessly efficient, let's do bullet points:

- Markets were on their way out the door by the time Bernanke got around to his Q&A.  The reaction had begun but wasn't developed.

- Overnight action doesn't always translate to the next day's trading levels, so we'll have to see how this pans out as the domestic session gets underway.

- Quite possibly, domestic markets simply didn't "react enough" given the nearness of the close of business and the light staffing situation.  Asia was willing to facilitate better trade.

- What give's specifically with Bernanke?  Here are a few things he said that are arguably bond bullish. Some notes in parentheses.

- Current unemployment rate of 7.6 overstates the health of the economy if anything. (We've sort of heard him poo-poo the U/E rate before in congressional testimonies.  While this is technically nothing new, this is a forceful way to say it).

- Will not be an automatic increase in rates when U/E hits 6.5 (known known).

- Inflation low and Fiscal policy is restrictive, so accommodative monetary policy needed for foreseeable future (inflation card being played increasingly.  Fiscal card a blast from the past.  Either way this at least is not bad for bonds).

- We're all very much committed to defending inflation target from above and below.  (hmmm... We know Ben doesn't like deflation, but this is also a new way to say that and it speaks to consensus on committee.  The implication is that low inflation is enough of a reason for easy policy.  What markets may not be realizing is that the Fed doesn't have to buy bonds in order to combat deflation)

- If conditions tighten to the extent they undermine dual mandate, we would have to push back against that.  (not really saying anything new, but again, 'forceful').

- asset purchases not having significant impact on supply/demand of safe assets (see bond markets?  Ben just told you that you were never overbought when QE expectations were high and you're not oversold now, so calm the heck down!  Oh wait, he didn't say "no impact," just not a "significant" one?  Hate to see what he'd call significant).

What are markets thinking here?  Is September tapering somehow off the table--all of the sudden and due simply to this Bernanke jawbone?  Not to grind a bearish axe, but it seems unlikely that domestic market participants will view this Q&A as a game changer as far as tapering expectations go.  The extent to which the rally continues is potentially set up for frustration when forced to cope with the reality that almost everything Bernanke mentioned in terms of easy policy could still be true in a situation where asset purchases are tapered.  QE is only one component of "accommodative policy." 

Or maybe, every last bit of this analysis isn't remotely as interesting as it sounds and it just looks like a big move because it happened between sessions.  After all, the longer term chart looks a lot less dramatic:

If you said "oh..." after seeing that chart, that's probably the default response.  We'll have to see how things pan out today in order to better assess if the overnight break below 2.62 is meaingful.  Jobless Claims provide a focus for the morning at 8:30.  Import/Export prices print at the same time, but no one cares.  The afternoon brings the last of the Treasury Auctions with 30yr Bonds at 1pm.