With European drama subsiding heading into this week and with yesterday seeing a logical move toward weaker levels, it was fair to be worried about more selling today.  After all, Italy-related risks flared-up.  Rates fell.  Italy risks subsided.  So rates should be rising.

That's not to say that Italy was the only game in town, but it was the only game anyone was trading or talking about last week.  I'd personally been waiting to see who or what would step up and claim the mantle of "market mover" for the current week now that Italy obviously wasn't going to be in the same position of power.  Interestingly enough, Italy was first in line to claim that mantle yet again today.

This time around, it was a speech from the new Prime Minister that was unapologetic in its populism while stopping short of calling for a Eurozone exit.  While this helped us hold ground today, it's not really a great reason to hope for more improvement in the future. On the other hand, bonds/rates may not be too eager to move too far from the fence ahead of next week's central bank announcements (from the Fed and the European Central Bank).  I think we're seeing a case of "nothing better to trade" until next week.

Bonds rallied modestly, with 10yr yields staying near "the gap" of 2.91-2.92%.  MBS also made modest gains, even after intraday volatility left bonds closer to their weaker levels of the day.