Markets were more active today, offering a nice little warm up for what promises to be an even more active day tomorrow.  The movement came in waves, beginning with a strong bond market rally at the start of the European trading session.  US Treasuries came along for the ride, resulting in slightly stronger morning levels for Treasuries and MBS.

With German Bund yields pushed up against all-time lows, Treasuries took over the duty of providing cues for the rest of the bond market.  There was big buying right after the 'pit' open, very likely linked to portfolio managers adjusting holdings for month-end.  That buying brought yields low enough to trigger a bit of a snowball rally to start the day

"Snowball rally" generally refers to short positions getting forced to become buyers in order to cover positions that are losing profitability.  In simpler terms, if rates are 2.49% and I bet that rates are moving higher, I might have a plan in place to cover my bet if rates fall 2.47%.  Someone bettering on higher rates "covers" by buying Treasuries.  My buying can then, in turn, trip the same safety mechanisms for other traders, creating that snowball rally.

After the snowball stopped rolling, a stronger-than-expected Consumer Confidence report sent markets back in the other direction.  Bonds moved weaker in fairly choppy fashion, though they never went into negative territory.  A strong 5-yr Treasury auction provided the cue to head back in a more positive direction and MBS are now coasting out the door 5 ticks higher at 102-16 (Fannie 3.5s).