The holiday-shortened week is off to a slow but positive start for bond markets.  The early overnight trading wholly confirms our "move to the sidelines ahead of a 3-day weekend" discussion from late last week.  Both stocks and bonds improved right out of the gate, but leveled off after China's Trade Balance data. 

Financial media seemed unified in their suggestion that the trade data was "bad for stocks," but S&P futures held relatively flat until the start of the European session.  Stocks and bond yields began moving lower after a big drop in German Wholesale Prices.  European session strength was subsequently chalked up to other weak data out of Germany that wasn't even released until the move was over.

Rather than hang on every little number and decimal point from the economic data, markets continue to look more content to follow each other around based on the concept of "risk."  When risk is on, bond yields and stock prices (and Oil, to some extent) are advancing.  Vice versa when risk is off.  The following chart captures the phenomenon.  I didn't label the lines because the point is to just observe the general level of correlation.  This chart includes 10yr yields, S&P futures, German Bunds, and Oil.

As you can see, "risk was on" heading into the 10am hour, but we've found our footing and have thus been able to hold on to the moderate overnight gains.  MBS are keeping a decent amount of pace with Treasuries.  Fannie 3.0s are up almost a quarter point at 101-10.  There was a slicker of reprice risk at the lows, but we bounced quickly enough to expunge it.