• Bonds were weaker throughout European hours (3am to 1pm)
• Stock prices moved significantly higher and were well-correlated with bond losses
• 10yr yields avoided breaking above last week's ceiling
• But negative technical momentum is intact

Bond markets had an off day, to be sure, and there's a risk that it's a bit worse than it looks.  First of all, what's redeeming about a red day?  Simply put, 10yr yields held under last week's ceiling of 1.887, only hitting 1.88 today.  That might seem fairly encouraging, and it even could end up being encouraging, but it could also be deceptive.  Reason being: today's weakness keeps longer-term negative momentum intact, even though it suggests short term support.

The weakness wasn't in response to any major event either.  Most of the losses were already intact by the time the exceptionally strong New Home Sales data came out at 10am.  Moreover, bonds were clearly responding to strong movement during the overnight trading hours.

Bottom line, we can be hopeful that 1.88 will continue holding up as a ceiling in 10yr yields (corresponds roughly to 102-00 in Fannie 3.0 MBS), but any break of those levels should be taken seriously, as they would confirm the longer-term negative momentum.