In 2011-2016, Europe was the dark horse market mover that ended up winning the race.  Far too few domestic market participants appreciated the impact of the currency contagion drama in 2011-2012, the onset of ECB QE in 2014-2015, or Brexit in 2016.  Were it not for the European continent, who knows how high US 10yr yields would be right now!  Certainly, it would be high enough to ruin your day if you're a loan originator or are otherwise a fan of low rates.

That broader retrospective serves as a template for the past few days.  Domestic traders have been scratching their heads wondering what's up with bond market resilience.  If "resilience" is going a bit too far, traders have at least been somewhat perplexed at the absence of new momentum so far in October.  Typically we'd see more commitment to one trading direction or another over the past 3 days.  Instead, we've sort of hovered near September's highs.

Traders are scrambling to explain it, and the best guesses so far have centered on "exhaustion" among short-sellers.  In other words, traders see other traders as having sold bonds as aggressively as they could have been sold for most of September, thus leaving yields to plateau here.  The JP Morgan client survey we discussed yesterday speaks to the overabundance of short interest, but there is another convenient explanation that's not getting quite as much attention.

In a nutshell, European bond markets have clearly been spearheading the broader bond market's overall push back against September's weakness.  If nothing else, it gives us an advance indicator to keep an eye on in the coming days.  

Domestic data can still have an impact, of course, but that's a luxury reserved for only a few reports.  Today's ISM Non-Manufacturing data is one of those few, though not a standout among them.  Traders are just as interested in the "prices paid" components of the ISM purchasing managers' indices as in the headlines themselves.  Reason being: inflation is the last big piece of the puzzle for faster Fed rate hikes.