The day started off well for domestic bond markets as weakness in Asia translated to some safe-haven demand for US Treasuries.  At the start of the domestic session, month-end buying was evident.  That means that certain traders were compelled to buy bonds in order to balance their portfolios for the end of the month.

Heading into the end of the European session, German Bunds sold-off aggressively, moving from .72 to .80 in just over an hour.  By comparison, the 2.14 to 2.18 losses in US 10's seem mild.  MBS are yet another degree removed from the European influence and have fared even better.  Fannie 3.5s remain an eighth of a point higher on the day. 

There's a bit more potential volatility this afternoon as the 3pm and 5pm time frames are hubs for month-end trading activity.