As Fannie 3.5 MBS pushed over 104 and 10yr yields moved down toward 2%, it became increasingly clear that the bond market rally required an ever-larger supply of motivation to continue rallying.  When we actually lost ground yesterday despite the some fairly negative news around the world, it looked like we'd reached the near-term limit and were consequently set to trade cautiously heading into tomorrow Fed Announcement.

But in the overnight session, global financial markets dropped off another huge meal for US bond markets.  For the second day in a row, the Russian Ruble fell in value more than any other session in 16 years--the last time Russia defaulted.  If anyone still cares about oil prices, they too trended lower.  Stocks were much weaker out of the gate and comments from Germany's top central banker cast doubts on the viability of sovereign QE in Europe (no QE is currently a good thing for German and US interest rates).

All of the above resulted in 10yr yields hitting 2% overnight.  Everything since then has simply been a consolidative correction.  There was a slight risk of a bigger pull-back just before noon, but bonds bounced back again immediately following the close of European stock markets, and never came close to dipping into negative territory.  Fannie 3.5s are heading out a quarter point higher.  3.0s are 3/8ths of a point higher.  Rate sheets are the best they've been since May 22nd, 2013--the first day of the Taper Tantrum.