If bond markets were left to their own devices today, we may well be seeing a bit of resilience--a modest tempering of the past two days of weakness perhaps.  Instead, MBS and Treasuries have been pulled into slightly weaker territory by European markets and domestic equities.

The first Thursday of the month always stands the chance to deliver some volatility from Europe as the European Central Bank (ECB) and often the Bank of England (BOE) release monetary policy statements and conduct press conferences.  While today's movement in European markets is by no means extreme, German Bunds (the most closely related sovereign debt to US Treasuries) are certainly pushing the pace for weakness.

Treasuries had been doing quite a good job of resisting weakness in Bunds, but equities markets joined the argument at the 9:30am 'cash open' in stocks.  After losing ground (in futures) into the 9am hour, equities came charging back into the cash open (almost a 20 point swing in S&P).  Combined with the weakness in Bunds, this was more than Treasuries could handle and 10's gave up their defensive position at 2.68 to move up to 2.70, but have been leveling-off fairly well there.

MBS continue to stand as the Diet Coke version of Treasuries in terms of movement.  If Treasuries are winning, MBS are winning slightly less.  If Treasuries are losing, MBS aren't losing as badly.  Same story today as Fannie 4.0s are only down 2 ticks compared to the 9 tick loss in 10yr yields.