On Friday, European considerations pulled bond markets into weaker territory after a draft of the bank stress test results showed numerous banks with capital shortfalls.  That might sound like something that would be positive for bond markets, but it was one of those headlines that was "not as bad as feared."   

Over the weekend, the official stress test results essentially confirmed the draft.  In other words, they weren't as bad as expected.  In fact, considering the fact that none of the core countries had banks with capital shortfalls, it was actually fairly risk-positive.

When markets are feeling risk-positive, stock prices and bond yields tend to rise, and they did precisely that at first.  Then Europe turned on a dime when a widely-followed German report on business conditions showed a marked decline, essentially serving as a reminder that it takes more than solvent banks to promote growth.

Core European bond markets led the charge back into positive territory for overnight trading in US Treasuries.  As a result, MBS and Treasuries were able to open right in line with Friday's latest levels and maintain a positive trend all morning.  Unsurprisingly, as the trading day winds down in Europe, domestic markets look to be reconsidering their morning trends.  While bonds are still in positive territory (and stocks in negative territory), things are leveling off for now.