Yesterday was nice while it lasted.  Against a sea of redness, it stood out like a beautiful green shoreline.  Unfortunately, that shoreline turned out to belong to an island and that island was quickly swallowed up by the angry red sea.  OK, so it wasn't quite that dramatic, but close!

The weakness began right at the start of the overnight session as the yield curve (and 10yr yields for that matter) bounced at technical resistance.  We were worried about this after yields failed to break below 2.615% yesterday but not reading too much into it at the time.  After all, we didn't want to press our luck with several bps of gains already on the board. It only made sense that bonds would take their time if they were trying to mount a buying offensive.

2.615 was the first bounce seen in the overnight session and it coincided with a similar bounce in the 2's vs 10's curve (.559% to be specific).  Both the curve and 10yr yields moved higher from there, pulled primarily by European bond markets.  Bond traders are generally defensive ahead of tomorrow's European Central Bank (ECB) announcement on the chance that ECB President Draghi throws his hat into the ring of policy tightening with the Fed.  That creates opportunity and risk. 

If Draghi is dovish (analysts see little justification for this), bonds could use another technical level--but this time, a positive one--as base camp for another rally attempt.  The level in question is nearby at 2.66+, so it's quite risky to float and hope it holds.  The default assumption is that a weaker trend is in effect and that it would take more than one or two days of solid gains for that to change.