Today is the last day of the month and quarter (or the fiscal year-end for many domestic entities or the entire nation of Japan).  That makes the end of March a bit more eventful, historically, than the end of the other three quarters.  Bond markets continue evaluating the normal set of motivations during this time, but they must now be balanced with the inherent tradeflow considerations that exist at month/quarter end.

What does that mean?  It sounds more complicated than it is.  Imagine all the money parked and all the new money constantly being invested in mutual funds and 401k--basically anything with a general "bond market" component.  The folks who manage that money can't simply use it to buy the bond market  in general (sometimes if clients are reallocating into a more aggressive stance, they might be net sellers of the bond market as well.).  They have to do it according to the fine print in their prospectuses (doesn't look like a word, but it is!).  

That fine print often specifies some iteration of a Barclays bond fund, which provides money managers with duration targets for their portfolio.  There are nearly infinite ways to hit the target duration, as long as the average maturity of the portfolio matches.  For instance, if you were trying to hit a duration target of 7yrs, you could do it by owning only 7yr debt, but that would be foolish as you'd only have 7yr debt to trade in the event you need to adjust your duration in the future (and that's a guarantee).  No one does this of course.  Instead, money managers are constantly playing tetris in a decreasingly liquid environment, trying to hold a smart balance of bonds that hits today's duration target and leaves them as nimble as possible for hitting future targets.

All that to say that the aforementioned targets generally must be hit by the end of the month.  With all those tetris bricks being considered, rearranged, and traded with one another, it can create volatility.  At the very least, it can create an unseen hand in the marketplace, moving prices with a seeming lack of regard for the normal inputs like economic data.

That could certainly be the case today, but Chicago PMI and Consumer Confidence are the type of reports that could still have an impact if they come in far enough from consensus.  However bond markets are behaving at 9:45am and 10am will offer clues about how big of a consideration the month/quarter-end trading environment has been.  If data suggests weakness, yet bonds hold steady, that probably means we'll have to pay back the weakness tomorrow.

One of the month end trading themes I'd intended to discuss a bit more (before the word count started getting away from me) was that of the steepening yield curve since Thursday.  One way to observe this is in the recent relative performances between the shorter end of the curve (I used 3's in this example) and the longer end (I used 10yr yields and Fannie 3.0 MBS).