Although bond markets were already heading toward their best recent levels by Friday night, the move over the weekend was on another level altogether.  10yr yields hit 2.176 just before 7:30am and Fannie 3.5 MBS hit the 8am open at 103-23, more than half a point higher than Friday's latest levels.  In both cases, this was the biggest gap from close to open in over a year.

It continues to be the case that stock prices and bond yields are generally traveling together.  In that sense, much of the bond market strength was related to heavy selling in stocks that began on Friday afternoon.  European bond markets also spiked significantly stronger at 4:30am, presumably following UK inflation data and later, Germany's ZEW investor survey.  German 10yr yields dropped to a record low of 0.838.

Since then, US bond markets have been caught in a bit of tug-of-war between European bonds and domestic equities.  S&P futures have rebounded nearly 20 points from overnight lows and Treasuries have been following, but not eagerly.  While the trend has been modestly higher this morning, it's also been leveling off without 10yr yields crossing above 2.24.  Compared to Friday's close at 2.28, we'll take it!

MBS are doing even better relative in terms of the shape of this morning's trading.  This is generally how things go when Treasuries gap out with a big rally.  MBS can't keep up at first, but then when/if Treasuries stabilize, MBS close the gap.  So whereas 10's are near their weakest levels of the morning, MBS are about halfway back to their best levels of the morning.