The past two days saw a decisive bounce in Treasuries precipitated by what might have been a decisive bounce in European bond markets.  As of this the wee hours of this morning, Europe missed their window to trade bond yields through the ceilings that would have confirmed such a bounce.  German Bund yields instead met with resistance right in line with yesterday's highs.  All this despite the fact that Germany had strong economic data to motivate bond market selling.

In other words, European markets effectively "called off" the sell-off and returned to orbit near all-time low yields.  Today's strength in Treasuries is a simple reaction to the realization they were offsides.  It's a safe bet that traders who sold Treasuries short on the run down to 2% are covering those bets after the overnight resilience (those bets are covered by becoming buyers today). 

MBS have done a reasonable job keeping pace with the bounce, but of course had less weakness to make up for considering yesterday's outperformance.   Fannie 3.0s and 3.5s are at the highs of the day, up 6 and 5 ticks respectively.  We haven't had any meaningful economic data, but several Fed speakers have been out saying generally bond-friendly things.  That's not a surprise considering the sources (Williams and Kocherlakota--both "doves"), but it's one more variable in the rearview with no negative implications.