Friday was tense for the bond market, with selling pressure that was just big enough to cause concern about a bigger correction, and buying support that was consistent enough to suggest we still had a chance.  Today's trading quickly proved it was buyers who had better control of the momentum--or did it?

Today's trading certainly proved that yields were willing to go back down, but that may not have as much to do with buying demand as it does with the structure of the market and the exceptionally low volume.  Simply put, it made strong, logical sense to be short bonds on Friday.  After all, yields had rejected a post-Fed rally  by failing to close below 2.02% for 2 straight days despite making it as low as 2.972% on Thursday.  Friday quickly brought 10yr Treasuries back to the 2.06% technical level.  Any higher and the snowball momentum might be going the other way.

As it stands, the snowball is in our favor due to a quick little short squeeze (traders betting on higher yields who are then forced to buy bonds to cover those short bets).  Of course, it takes some measure of buying demand to get a short squeeze started, but it's a lower bar to clear on the lowest volume day in 2 months.  Bottom line: today doesn't tell us much about bigger-picture momentum.  Volatility risks are still in place and we simply got to enjoy a pleasant surprise.  Even then, the surprise was more for Treasuries depending on your lender (some were unchanged from Friday, or even a bit weaker as MBS didn't move much relative to the broader bond market).